PT1: Draw a graph that shows a market demand curve (marginal private benefits curve) and market...

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.

Solutions

Expert Solution

Rahul Sunny answered 2 years ago

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