Question #59620

Pollution. Determine the SWL before the tax.

D: P = 1,400 - 2Q

S: P = 200 + 2Q

Poll.: P = 80

D: P = 1,400 - 2Q

S: P = 200 + 2Q

Poll.: P = 80

Expert's answer

If demand and supply functions for pollution are:

D: P = 1,400 - 2Q

S: P = 200 + 2Q

In equilibrium Qd = Qs, so:

1400 - 2Q = 200 + 2Q,

4Q = 1200,

Q = 300 units.

P = 1400 - 2*300 = $800.

If the price of pollution is P = $80 and Q = 300 units, then the social welfare loss before the tax is SWL = P*Q = 80*300 = $24,000.

D: P = 1,400 - 2Q

S: P = 200 + 2Q

In equilibrium Qd = Qs, so:

1400 - 2Q = 200 + 2Q,

4Q = 1200,

Q = 300 units.

P = 1400 - 2*300 = $800.

If the price of pollution is P = $80 and Q = 300 units, then the social welfare loss before the tax is SWL = P*Q = 80*300 = $24,000.

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