Question

3. Market demand for a good is given by QD= 30- 2P and its market supply...

3. Market demand for a good is given by QD= 30- 2P and its market supply is given by QS=P - 6.

(a) Determine the market equilibrium quantity (QM) and price (PM) .

(b) If marginal external benefit is 3 at all levels of consumption (i.e. MEB=3), then what is the socially efficient level of production (Q*)?

-Provides some work to justiy your answers.

Homework Answers

Answer #1

Answer:
a. market equilibrium quantity (QM) = 6
and price (PM) = 12
reason:
Market equilibrium quantity and price are when Qd = Qs
30 - 2P = P - 6; so P = 12; Q = 6

b.  socially efficient level of production (Q*) = 8
reason: Socially efficient output is where MPB + MEB = MC
We need inverse functions for that where we present Price as a function of quantity.
15 - 0.5Q + 3 = 6+ Q so, Q = 8; P = 14


  


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