Question

what are the answers to these questions?

Use the graph below to answer que stions 1-5. It represents the market for the monthly U.S. beer market, a delicious product which nonetheless produces one of the largest negative externalities among popular goods Ssocial Sprivate 10 15 20 25 30 35 4045 50 55 60 65 0 5 Qin millions 1. What is the implied amount of the marginal damage in the above graph? 2. At what price is the socially optimal equilibrium found? 3. At what quant ity is the socially optimal equilibrium foun d? 4. How much de ad weig ht loss does the private equilibrium create? 5. At what tax would we achieve the socially efficient equilibrium? $ price per 30-rack of swill

Answer 1

1) difference between the social and private curve = 25-15 =10

2) Price at the socially optimal equilibrium = 20

3) quantity at the socially optimal equilibrium = 20 million

4) DWL = 0.5*(30-20)*10 = 50 million

5) Tax = $10 will achieve the socially efficient equilibrium