Question

A new material used for cans has recently been discovered, campanilium. The metal can be extracted and sold at a price of $2 per ton and the demand for the metal is QD = 10 - P. Importantly, used campanilium can be recycled and the supply curve of recycled campanilium is QSR = 0.5P + 1.

(a) Graph the demand for campanilium, the supply of recycled campanilium and the supply of newly extracted campanilium. Solve for the equilibrium quantity of all campanilium sold. What fraction of this is recycled campanilium?

(b) Suppose the government imposes a tax of $1 per ton on newly extracted campanilium. Find the new equilibrium total quantity. With the tax, what is the fraction of campanilium supplied from recycled sources?

Answer 1

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