I'm teaching sophomore level environmental and resource economics (with no prerequisite). We just finished covering the principles level negative externality market model. Here is the problem set:
Consider the following model:
- Qd=200-20P
- Qs=20P
- MEC=2
- MSC=MPC+MEC
- At the unregulated (inefficient) private market equilibrium :
- What is the consumer surplus?
- What is the producer surplus?
- What is the external cost?
- What are the net benefits?
- Consider the regulated (efficient) social market equilibrium
- What is the consumer surplus?
- What is the producer surplus?
- What is the external cost?
- What are the net benefits?
- What is the change in net benefits realized moving from the inefficient equilibrium to the efficient equilibrium?
Note that the regulation is a quantity restriction. We're saving taxes for the marginal damage-marginal abatement cost model.
Any suggestions?