Please answer the following problems at the end of the assigned chapter:
Chapter 3: Problems 1 and 5
1.The supply of paper is described by the following equation:
where Qs is tons supplied per year and P is the price per ton. The demand is described by
QD = 400,000 -1,000P
where QD is tons demanded per year. Because of the pollution associated with paper production, marginal external costs of $20 are associated with each ton of paper. Assuming that paper is sold in a competitive market, what is the market price? How many tons of paper will be produced per year at that price? What is the efficient annual output of paper? How can a corrective tax achieve efficiency?
5. Economists argue that there is an efficient amount of pollution abatement. Explain why the efficient amount of abatement is unlikely to be either 0 or 100 percent. List all the information that would be required to determine the efficient amount of pollution abatement. Why is it difficult in practice to determine the efficient amount of pollution abatement?
Chapter 4: Problem 1
- The following table shows how the marginal benefit of a service varies for four consumers:
Marginal benefit (in Dollars)
Quantity Alice Ben Carolyn Don
1 1000 800 600 400
2 800 600 400 200
3 600 400 200 100
4 400 200 100 50
a. Suppose the service is a pure private good and is sold in a competitive market with the only buyers being the four people whose marginal benefits are shown in the table. If the market price of the product is $400, what is the quantity demanded?
b. Suppose the service is a pure public good with the only consumers being the four people whose marginal benefits are shown in the table. What is the marginal social benefit of two units of the service?
c. If the marginal social cost of the good is $2,000, what is the efficient output assuming that it is a pure private good?
d. If the marginal social cost of the good is $2,000, what is the efficient output assuming it is a pure public good?
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