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Question
Suppose the supply curve of portable radio rentals in Golden Gate Park is given by P= 5 + 0.1Qs, where P is the daily rent per unit in dollars and Qs is the volume of units rented in hundreds per day. The demand curve for portable radios is P = 20 - 0.2Qd.
a. If each portable radio imposes $3 per day in noise costs on others, by how much will the equilibrium number of portable radios rented exceed the socially optimal number?
b. How would the imposition of a tax of $3 per unit on each daily portable radio rental affect efficiency in this market? Will this achieve the social optimum?
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