26 Jul HOW WOULD THAT CHANGE THE OPTIMAL POLICY RESPONSE?
Demand: Show more The market for a particular chemical called Negext is describedby the following equations Demand: Qd=100-5P Supply_Qs=5P where Q is measured as units of Negext and P is price in dollarsper unit. b. for each unit of negext produced 4 units of pollution areemitted and each unit of pollution imposes a cost on society of$1. Compute the total cost of pollution when the market of Negextis in equilibrium. what is total surplus from this market aftertaking into account the cost of pollution? c. would banning Negext increase of decrease welfare?why? d. suppose that the government restrict emission to 100 units ofpollution. Graph the Negext market under this contraint. find thenew equilibrium price and quantity and show them on your graph.compute how this policy affects consumer surplus producer surplusand the cost of pollution. would you recommend this policy?why? e. suppose that instead of restricting pollution the governmentimposes a tax on producers equal to $4 for each unit of chemicalproduced. calculate the new equilibrium price and quantity as wellas consumer surplus producer surplus tax revenue and the cost ofpollution. what is total surplus now? f. new research finds the social cost of pollution is really higherthan $1. How would that change the optimal policy response? isthere some cost of pollution that would make it sensible to banNegext? if so what is it? Show less
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