Question

2. Suppose that the private cost of gold per ounce is given by the equation $ - 100 + 20 and Marginal Social Benefit for gold is given by the equation $ = 600-0.50 a. Suppose that each ounce of gold produced is accompanied by an external cost of $100 due to future impacts on a downstream laundry. i. Solve for the socially optimal quantity of gold. ii. Solve for the unregulated market quantity of gold. iii. Produce one fully labeled diagram of questions i and ii. iv. How much Net Benefit would society lose by ignoring the external Costs and harvesting gold at the rate you found in question ii instead of the socially optimal rate you found in question i? V. Describe a command-control policy option to correct the externality. vi. Describe an incentive policy option to correct the externality.

Answer 1

(III)

Private cost $ 100+20 MSB & 2600-0.5 External cost - $100. Marginal social cast - Private cost & External cost $ = 100+20 +100 Mec : - 00:20 Sonally optional quantity of old: Msc - MIB- & 600 – 0.50 = 200tre. 400 - 2.50 QF 400 - 160 0 = 160 Unregulated where MSB = private cost 100+20=600-0.50 2.50- 500 ii) al Toch = 200

MSC PMC TUK En socially ophind Easim Eqsim unregulated Market! buo DWL EUN MSB. Of 1160) Oun (200) finely sold erye enforcement terrorist

(IV) Lost Benefit - Dead weight loss (DWL) = (K-EN) * COUN OM) K is the cost (mse of producing unregulated amant of Gold: K(4)= 200 + 2 * Q N (Msc egh) = 200 +2*200 $ = 600 EUN &$=500 (100+20UN) [PMC]. DWL = I (600-500)" (200-160) lo0 x 40 x = $2000 Hi! Please lost sub-parts Thank you! in lot of four.