When consumers use more recyclable tableware, it generates external benefit to the society because it helps the society reduce the solid waste pollution and ease the pressure on landfills. However, the benefits are not considered in the private market.

Suppose you are an environmental economist working with the following marginal benefits and costs in the recyclable tableware market, where Q is thousands of pounds and P is price per pound.

Marginal private benefit (MPB) = 300 - 0.3Q

Marginal private cost (MPC) = 60 + 0.3Q

Marginal external benefit (MEB) = 50 - 0.05Q

Question 18:

a) Solve the competitive equilibrium and social optimal equilibrium. (6 marks)

b) Suppose an environmental group is willing to pay the consumers to use more recyclable tableware. What is the bargaining range at the competitive equilibrium? Explain your answer. (6 marks)

c) Why private negotiation (like part b) is hard to achieve in reality? Please give three reasons with explanation. (6 marks)