Question

6. Severe snowstorms in the Northeast create hazardous driving conditions. To reduce the number of accidents, many communities apply salt to their roadways. However, salt runoff can damage fish and wildlife habitat, an external cost estimated to be $100 per ton of salt that is not accounted for by highway departments. The market for road salt is shown below. $/ton 400 MC private 300 200 ND=MWTP → 8 10 road salt (millions of tons) 2 4 6 a. (4 points) What are the market equilibrium price and quantity of road salt? b. (6 points) What are consumer surplus and producer surplus at the market equilibrium? c. (4 points) What are the total external costs (i.e., damages) at the market equilibrium? d. (4 points) What are net social benefits at the market equilibrium? e. (4 points) What are the socially efficient equilibrium price and quantity? f. (6 points) What are consumer surplus and producer surplus at the social equilibrium? g. (4 points) What are the total external costs (i.e., damages) at the social equilibrium? h. (4 points) What are net social benefits at the social equilibrium? i (4 points) Who are the winners and losers associated with a policy that restricts production to the socially efficient level?

Answer 1

$1 tonn 400 S=TACpvt. 200 DE MWTP to a roadsalt Comillions of tons) o equilibrium Price = $200 a qty = 4 matons 2 - consumer surples & Ix (100-200) x 4 = $400 B- Producersurplos IX (200-0 x = $ 400 3 Total external costs (ie, damages) = $100 xu a $400 (C) Total external costs net - marginal Social benefit & Total (A.+18) (c) HUUUUUUUUUUUUUUUUUU