1. What is the market equilibrium price and quantity? (A) p = 9, q = 10 (B) p =
ID: 1124002 • Letter: 1
Question
1. What is the market equilibrium price and quantity?
(A) p = 9, q = 10
(B) p = 9, q = 6
(C) p = 17, q = 10
(D) p = 13, q = 6
2. What is the deadweight loss from the externality?
(A) $32
(B) $16
(C) $8
(D) $64
3. What is the socially ecient price and quantity?
(A) p = 9, q = 10
(B) p = 9, q = 6
(C) p = 17, q = 10
(D) p = 13, q = 6
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The next 3 questions involve the following Figure, which depicts a negative externality: Figure 2: PPF MSC 17 MPC 13 5 Demand 6 10 QuantityExplanation / Answer
Answer 1. (A)
The equilibrium quantity and price is determined at the point where the demand curve intersects the MPC curve , that is the Marginal Private Cost curve. The quantity is 10 units and price is 9 units at that point.
Answer 2. (C)
The deadweight loss can be calculated by the triangle in between. Area = 1/2* (13-9) * (10-6) = 8$
Answer 3. (D)
The social optimal quantity and price is given by the intersection of demand and Marginal social cost curve. Thus, the quantity is 6 units and price is 13 units.
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