Q#3: Externalities
The Demand curve for parking lots is given by P=1000-Q.The supply
of parking spots in a city is associated with increasing external
costs. While the private supply curve is given by P=Q (where P
denotes price and Q quantity), the social supply curve is P=2Q. Now
assume the city imposes a Pigou Tax on the supply. Calculate the
remaining deadweight loss. Rounded up or down to the next closest
integer. (2 pts)
Above are the given curves plotted.
Intersecting point for
P = 1000 - Q, and P = 2Q
is, Q = 1000/3, P= 2000/3
Point A is (1000/3,2000/3)
Point B is when Q = 1000/3 on line P=Q,
B is (1000/3, 1000/3)
Point C is P=1000-Q and P=Q
C is (500,500)
Area of ABC is Dead weight loss
1/2*Base*height
=1/2*AB*(height)
=1/2*(2000/3-1000/3)*(500-1000/3)
=1/2*1000/3*500/3
=27777.78
Rounding off
Answer is 27778
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