Question

The figure below shows the daily market for water-skiing permits on Shuswap Lake in British Columbia. Suppose that each skier (i.e. each permit) imposes a $4 negative externality on the lake.

a. The socially optimal level of water skiing is permits.

b. If there is no government intervention in this market, the loss of surplus would be $ .

The figure below shows the daily market for water-skiing permits on Shuswap Lake in British Columbia. Suppose that each skier (i.e. each permit) imposes a $4 negative externality on the lake. Price of ski permits($) Sprivate Derivate 10 20 30 40 50 60 70 80 90 100 Skiers (permits) per day a. The socially optimal level of water skiing is 30 permits. b. If there is no government intervention in this market, the loss of surplus would be $ 20 . c. Suppose the government imposes a $12 tax on suppliers of ski permits. Compared to no intervention, the net loss in surplus from this tax is $ 80 .

Please let me know why the $80 is incorrect and what the right answer is.

Answer 1

As asked, only part (c) is answered Price of ski permits($) S+tax private 10 20 30 40 50 60 70 80 90 100 Skiers (permits) per day Post $12 tax, the supply curve shifts to the left by $12 New Q is 10 and P is $14 Deadweight loss from tax = Red colored triangle Deadweight loss = 72 x (40-10) x (12) Deadweight loss = 180