In: Economics
PT1: Draw a graph that shows a market demand curve (marginal private benefits curve) and market supply curve (marginal private cost curve) for gasoline. The quantity of gasoline should be the label for the horizontal axis and $ should be the label for the vertical axis. Label the intersection of these as QME.
PT2: Draw a marginal social benefits curve that indicates that there are negative externalities from gasoline consumption in the form of pollution. Show where Q* (socially optimal Q) is.
PT3: Shade the triangle that represents the social costs from having a higher than socially optimal level of gasoline consumption.