Question

1. Builders constructed the World Trade Center using about 400 tons of asbestos in the structure’s insulation, drywall, fireproofing materials and steel because of the mineral’s heat resistance and affordability. The 9/11 terrorist attacks released the deadly toxin in a dust cloud across Manhattan.

When the Twin Towers collapsed to the ground on September 11, 2001, a massive cloud of smoke, dust and debris released hazardous asbestos fibers and other toxic substances into the air. Asbestos fireproofing materials from 20 stories of the towers fell down on New York City.

The World Trade Center Health Registry estimates about 410,000 people were exposed to a host of toxins including asbestos during the rescue, recovery and clean-up efforts that followed 9/11. People most affected by asbestos at Ground Zero were people assigned to rescue survivors. These workers were among the first on the scene and the last to leave the wreckage. Search and rescue workers and others responsible for cleaning up the debris in the months after the towers collapsed were also exposed to asbestos.

Marginal benefit of rescue service in unit of hours: 200 - 25Q

Marginal private cost of rescue service in unit of hours: 25Q

Marginal social cost of rescue service in unit of hours: 100 + 25Q

What are the private and social equilibrium prices and quantities?

Answer 1

Marginal benefit, MB = 200-25Q
Marginal private cost, MPC = 25Q
At private equilibrium, MB = MPC
So, 200 - 25Q = 25Q
So, 25Q + 25Q = 200
So, 50Q = 200
So, Q = 200/50 = 4
And P = 25Q = 25(4) = 100

Thus, private equilibrium price = 100 and quantity = 4

Marginal social cost, MSC = 100 + 25Q
Social equilibrium occurs where MB = MSC
So, 200 - 25Q = 100 + 25Q
So, 25Q + 25Q = 200 - 100
So, 50Q = 100
So, Q = 100/50 = 2
And P = 100 + 25Q = 100 + 25(2) = 100 + 50 = 150

Thus, social equilibrium price = 150 and quantity = 2