Suppose that there is initially no government intervention

Reference no: EM13392974

Assume that the demand for electricity is q D = 120 2pD

where q D and pD are the quantity demanded and the price paid by buyers. As before, there are two kinds of electricity providers, nuclear and renewable. The supply curve for renewable power is qR = pS

where qR and pS are the quantity supplied and the price received by sellers R in the renewable sector. The supply curve for nuclear power is qN = 2pS N

where qN and pS are the quantity supplied and the price received by N sellers in the nuclear sector.

(a) Assume that there is initially no government intervention in the market for electricity. Find the total surplus in the market for electricity.

(b) Now imagine that the government places a tax of $1 on each unit of electricity generated by the nuclear sector, and simultaneously places a subsidy of $2 on each unit of electricity generated by the renewable

sector. The tax is paid by the ...rm, and the subsidy is received by the ...rm. Find the welfare cost of the program.

Reference no: EM13392974

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