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2. Consider the following free market. $300 $200 $100 500 1200 Quantity i. Calculate consumer and producer surplus in this market. ii. If the marginal external cost of production is $10, the socially optimal quantity is 400 and the socially optimal price is $205. Show the new consumer and producer surplus and calculate them. Also show the deadweight loss on the graph and calculate it.

2. Consider the following free market. $300 $200 $100 500 1200 Quantity i. Calculate consumer and producer surplus in this market. ii. If the marginal external cost of production is $10, the socially optimal quantity is 400 and the socially optimal price is $205. Show the new consumer and producer surplus and calculate them. Also show the deadweight loss on the graph and calculate it.

Microeconomics: Private and Public Choice (MindTap Course List)
Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter5: Difficult Cases For The Market And The Role Of Government
Section: Chapter Questions
Problem 10CQ
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2. Consider the following free market. $300 $200 $100 500 1200 Quantity i. Calculate consumer and producer surplus in this market. ii. If the marginal external cost of production is $10, the socially optimal quantity is 400 and the socially optimal price is $205. Show the new consumer and producer surplus and calculate them. Also show the deadweight loss on the graph and calculate it.
Transcribed Image Text:2. Consider the following free market. $300 $200 $100 500 1200 Quantity i. Calculate consumer and producer surplus in this market. ii. If the marginal external cost of production is $10, the socially optimal quantity is 400 and the socially optimal price is $205. Show the new consumer and producer surplus and calculate them. Also show the deadweight loss on the graph and calculate it.
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