Homework Answers
Ans) 1) Equilibrium is a point where quantity demanded is equal to quantity supplied.
We see in the table, that at price of $15, quantity demanded is equal to quantity supplied. Therefore it is equilibrium price.
Equilibrium price = $15
Equilibrium quantity = 100 million crates
Revenue = price × quantity = $15 × 100mn = $1,500,000,000 = $1.5 bn
When price is above equilibrium price, there is surplus or excess supply in the market.
Consumers will buy 80 mm crates .
Revenue = price × quantity = $25 × 80mn = $2billion.
2) Negative externality is when the bystander bears the cost of any activity. To internalise the externality, government imposes tax equal to the amount of external cost.
Tax = price paid by buyers - price received by sellers = $325 - $100 = $225 per ton
Ans÷ Tax , $225
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