EC238 Study Guide - Brie, Economic Equilibrium, Social Cost
Document Summary
This assignment covers two important skills: partial equilibrium analysis, cost minimization, suppose that the market for some private good involves external costs like pollution. The supply and demand are described by linear functions as follows: Where pc and pp are the prices paid by consumers and received by producers respectively. Qd and qs are the quantities demanded and supplied, respectively. 1. There is worth of damage done every time a unit of the good is produced. [5] (a) solve for the equilibrium price and quantity of this market if there is no tax or subsidy in place. Qm = 40 (3) (4) (5) (6) (7) 1these are sometimes called inverse" demand and supply functions because they relate price to quantity, rather than the other way around. Plugging this into either equation 1 or 2 yields: [10] (b) calculate the total social bene ts, total social costs and total net social bene ts associated with the market equilibrium.
