Explain how a tax could be used to steer competitive market

Reference no: EM133659118

Problem: Demand for a product called widgets is given by p = 200 - 2Y. Supply is given by p = Y/2 + 5, where Y is the quantity of widgets per month and p is the price of widgets. Assume a perfectly competitive industry. Graph the supply and demand curves, find the competitive market price and quantity of widgets and show them on the graph. Suppose the production of widgets creates pollution damages of $5 per unit of widget produced. Find the economically efficient levels of price and quantity of widgets and show them on your graph. Explain how a tax could be used to steer the competitive market outcome towards the economically efficient outcome.

Reference no: EM133659118

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