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1) Suppose demand for automobiles in the United States is given by P-100-0.09QD where Pis the price for new vehicles in dollars and Qp is the quantity demanded per month Assume the supply of automobiles is given y P 4+0.03Qs where again P is the price in thousands of dollars and Qs is the quantity sold per month in hundreds of thousands. a.) Solve for the market equilibrium price and quantity. (2 pts) b.) Depict this market graphically, and compute consumer and producer surplus in this market. (4 pts) c.) Suppose that the negative external cost of each automobile is $6. Add the social cost curve to your graph, and calculate the amount of the externality and the deadweight loss. (4 pts)d.) Suppose we institute a tax on automobiles that fully internalizes the externality. Indicate how this affects the market graphically, and solve for consumer surplus, producer surplus, and the total amount of the tax revenue. (4 pts)

IMPORTANT! PLEASE ONLY DO D) AND SHOW THE GRAPH FOR IT AS WELL AS THE MATH

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Answer #1

Given that, dema d p0γ automobiles the united statess where pPtce fo new vehicles o dollar puatity demanded Per mon h The cuppl딤 일 automobilet. &given PPoice ihousands of doll ar4 4quantity old Per month 0 03 100-P12 t3P (b The matket s depciated be low - 288o0 9600to 구GD 800 c) The Socta P-10 、03 = Equlibrium too 3 The etenalityat pstivate equatio 6x 800 4800 (d) The tar that inter nalizer the externality i 6 Pe» unit tan. Thie changes the upply cuve tosh ts the Left The s e neo Suppy cYve Coinuder wrth theM Cusve and new equilibium oclars[06 87-S-

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