Suppose the government imposes a corrective tax

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Reference no: EM13739608

Suppose that the oil refining industry releases one unit of waste into the atmosphere for each unit of refined product.

Demand: P = 20 - Q

Supply: P = 2 + Q

Marginal damage is given by:

MD = .5Q

a. Find the equilibrium price and quantity

b. Suppose the government imposes a corrective tax of T per unit of unit of emission. How large should T be if the market is to produce the socially efficient amount of the refined product?

c. How much revenue would be raised by the corrective tax?

Reference no: EM13739608

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