Quick question. Need help with the answer to the installations per year question
ID: 1224350 • Letter: Q
Question
Quick question. Need help with the answer to the installations per year question (GREEN ARROW)
The graph below represents the annual private value (Private Value) of solar panels to consumers and the private cost (Private Cost) of solar panels to producers. Assume that, in addition to the benefit to individual buyers, the rest of society gets an additional $40,000 benefit from each house installed with solar panels. The social value (Social Value) of each solar panel installation is, therefore, $40,000 more than the private value at each quantity. Use the green line (triangle symbols) to graph the social value curve on the graph below. After plotting the social value curve, you can see that the socially optimal quantity exceeds the market equilibrium quantity by installations per year. Now imagine the government introduces a 30% tax credit for solar panel installations. This means that homeowners can deduct 30% of the cost of their installation from the amount they pay in taxes. For example, at the original market price of $100,000, the consumer would only really be paying $70,000 after deducting the $30,000 savings in taxes. If the cost to consumers is only $70,000 per installation, they will demand 6, 500 installations per year. Place a black point (X symbol) on the graph to mark the spot on the graph corresponding to a sticker price of $100,000 and the quantity demanded under the government incentive plan (from your answer above). This point is one spot on the market demand curve after the government initiates the rebate. Now, place another black point on the spot representing the demand if the price is $200,000. (Plot the second point at a price of $200,000 and the quantity demanded when the real price consumers pay Is 30% lower.)Explanation / Answer
Answer is 1,000 installations per year. [6,000 installation(new equilibrium) - 5,000 installation(initial equilibrium)]
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