Find the aggregate willingness to pay function

Reference no: EM133487319

Question 1. Consider the case of greenhouse gas (GHG) sequestration (removal from the atmo- sphere) as a public good. Suppose there are 100 identical countries, each of which has an identical inverse demand function for carbon removal given by p = 20 -1/4QD, where QD be the number of tons of GHGs removed from the atmosphere, and p is the marginal willingness to pay for removing carbon. Assume the marginal cost of sequestering GHGs is constant and $50 per ton.

(a) Find the aggregate willingness to pay function for global greenhouse gas seques- tration. Graph this function, label all axis and intercepts.

(b) How many tons of GHGs should be sequestered in order to maximize total global surplus (achieve allocative efficiency)?

(c) Find the economic surplus (i.e. total surplus). What is the total net benefit to all countries of sequestering the amount found in part (b)?

Reference no: EM133487319

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