In the market for electric vehicles, marginal private benefits to consumers is:

  • June 25, 2021

In the market for electric vehicles, marginal private benefits to consumers is:MPB(Q)=50,000-50Q while marginal private costs to suppliers is: MPC(Q)= 75Q. The marginal external benefit of each additional electric vehicle sold is MEB=5,000. (a)State if a positive or negative externality exists in this market. Briefly justify your answer. (b)Calculate the competitive market equilibrium price and quantity in the absence of government intervention. Show your workings. (c)Calculate the efficient level of market output that maximises total social surplus. Show your workings. (d)State the optimal Pigovian tax or subsidy required to ensure that the efficient level of output is produced. (e) Draw an appropriate, well labelled diagram with the marginal private cost, marginal private benefit, marginal external cost and marginal external benefit curves. Carefully indicate the following in the diagram: -The competitive market equilibrium output in absence of government intervention. -The competitive market equilibrium output in the presence of the optimal Pigovian tax or subsidy from your answer to part(d). -The areas representing consumer surplus producer surplus, third party surplus and government surplus with the optimal Pigovian tax or subsidy. -The area representing deadweight loss associated with the competitive market equilibrium in the absence of government intervention

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