What is the socially optimal quantity

Reference no: EM133490699

Assignment:

(1) Externalities

Assume the private demand curve (private marginal utility) for automobile trips is given b P=1020- 1.5Q. The private supply curve (private marginal cost curve) is given by P=200 +2 P stands for the price of gasoline and Q for vehicles miles driven.

a) Calculate the private equilibrium

b) If the supply of the good is associated with an external cost of 25 per unit (shift supp}: what is the socially optimal quantity?

c) What is the DWL of the private solution?

d) Assume the city were to impose a Pigou Tax on the supply side. What is the tax ($/ unit) privately optimal quantity? What is the tax (35/ unit) at the socially optimal quantity?

Reference no: EM133490699

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