Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MCp = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MCe = Q. What specific tax would result in a competitive market producing the socially optimal quantity of paper?
What will be an ideal response?
The socially optimal quantity of paper is found by setting MCp + MCe = p or 10 + Q + Q = 100 - Q. Rearranging yields Q = 30. At this level of output society incurs an external cost of 30. This is the specific tax that would yield the socially optimal quantity. To check, set MCp + tax = 100 - Q. This yields Q = 30.
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a. Charge the same for both weekday and weekend rentals. b. Charge more for weekend rentals and less for weekday rentals. c. Charge more for rentals during the week and less for weekend rentals.
An example of moral hazard is
a. workers working diligently even though the boss is not looking b. health care insured dieting and exercising c. drivers of safer cars turning their phones off before driving d. borrowers investing their loan proceeds differently than the bank requires