10) Suppose the government revises its estimate of the external benefit per unit from $2 to $4.
Homework Answers
Q7) C)$10
$2*equilibrium quantity produced= 2*5=$10
Q8) D) $2 subsidy
Since it is a positive externality, the government will give a subsidy on it to the extent of positive externality produced so that there is more supply and consumption of the good.
Q9) C) No gain or loss in total surplus
Since, the government is giving a $2 subsidy out of its budget and the consumers are getting $2 of positive externality then the net surplus is (-)$2+$2=0
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