Total estimated externality cost being borne by society

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Reference no: EM131088818

Demand: P = 7 – 2Q

Supply: P = 4 + Q

Where P is output price in $/bushel and Q is billions (1,000,000,000s) of bushels.

Suppose there is a negative externality associated with wheat production. The costs that it imposes on society from water quality and soil erosion issues are estimated to be $1.50 higher per bushel than the private costs reflected in our supply function.

How much is the total estimated externality cost being borne by society? (hint: the per bushel externality cost time the total bushels produced at market equilibrium)

What do we call a tax that is designed with a goal of correcting for a negative externality?

How much would such a tax have to be to achieve this goal in this market?

Reference no: EM131088818

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