10 points Suppose Qo 50010P and Qs200 describe market deman

(10 points) Suppose Qo = 500-10P and Qs-200 describe market demand and market supply in a given market. a. Algebraically find equilibrium price and quantity and support your answer graphically. You must show b. What is unusual about this market? Give an example of a good or service that might be characterized in your math for credit. this way. 2. (10 points) Now, suppose that the supply curve from question 1 above has changed to this new supply curve Qs - 20P- 100, with no change in market demand (the original demand equation stays the same). Determine the new Pe\' and Qe\' for bottled water. You must show your math in order to get full credit. 3. (15 points) Use economic analysis to evaluate the following statement: The only amount of acceptable pollution is no pollution at all. Hint: think about the graph that shows the optimal amount of pollution. 4. (20 points; 5 points each) A chemical pesticide producer releases wastes into the Arkansas River. Because the negative effects are not captured by the private market, there is a market failure, which is illustrated by the following functions, where Q is the amount of liquid chemical pesticides in thousands of barrels, and P is the price per barrel: MSB-100-0.5Q MPC = 20 + 0.5Q MEC- Q

Solution

1. a. Qd = 500 - 10P , Qs = 200

For equilibrium,

Qd = Qs

500 - 10Peq = 200

300 = 10Peq

Peq = 30

Qeq = 200

b) The unusual thing is that quantity supplied is fixed no matter how much the demand is. One example is housing.

2) Qs\' = 20P - 100 Qd = 500-10P

For equilibrium,

Qd = Qs

20Peq - 100 = 500 - 10Peq

30Peq= 600

Peq = 20

Qeq = 300

3)

We should recognize the flaw in assuming that the optimal level of pollution is zero. While this may be the case in certain instances, it is the exception rather than the rule.

The general solution is that the optimal level of abatement occurs where the associated marginal social benefit is equal to the marginal social cost. This optimal level is not necessarily zero.

From a general perspective, abating at the 100 percent level to reduce pollution to zero involves prohibitive opportunity costs. These include the forgone production and consumption of any good generating even the smallest amount of pollution. Given our present technology, a zero-pollution world would be one without electricity, advanced transportation systems, and virtually all manufactured products. It makes little sense to argue for the elimination of all pollution in our environment