Suppose the market for whirlygigs, a competitive market, is described by the following Supply and Demand curves. Supply: P = 10 + 3QS Demand: P = 70-2Qº a) F
ind the equilibrium price and quantity for this market. b) Suppose a negative externality (pollution!) arises in the production of whirlygigs such that true Social Marginal Cost is 20 + 3Q (the marginal external cost is 10 per unit). Find the Pareto efficient quantity of whirlygigs. c) One way to reach the efficient level of whirlygigs would be to tax the producers of whirlygigs. How much should each whirlygig be taxed to reach the efficient quantity of whirlygigs?
