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What is the socially efficient price

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Let the aggregate inverse demand curve for household pesticide use be: P = 8 - 0.08Q, where Q is tons of pesticide used by households per month. The marginal private costs (MPC) of pesticides is given by P = 2 + 0.04Q. Pesticide use leads to declines in wild bee populations, and hence its use creates a negative externality. Estimates of the marginal damages from household pesticide use are marginal external costs (MEC) = 0.03Q.

(a) What quantity of pesticide use will the market produce when no one takes into account the negative externality?

(b) What is the socially efficient price and level of pesticide use?

(c) What is the net social gain if pesticide use incorporates the externality?

Reference no: EM132813047

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