Solve F and G please Answer the following questions, showing your work. Assignme

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Solve F and G please

Answer the following questions, showing your work. Assignments must be legible... I prefer typed assignments, but handwritten assignments are acceptable. You must show your work, but you do not need to print formulas in Excel spreadsheets. You may complete the assignment by yourself or in a group of up to three people. You only need to submit one assignment per team, but please make sure that all team members are listed on the first page of your submission. 1. Market demand for widgets can be determined by the following equation: Q 1000 2P Thus, for example, if the price is S20, then consumers would want to purchase a total of 960 widgets. Market supply for widgets is determined by this equation: What is the maximum price at which suppliers would not produce any widget? What is the minimum price at which consumers would not buy any widget? What is the equilibrium price and quantity of widgets in this perfectly competitive market? Suppose that a research study is disclosed in which it is shown that the consumption (demand) of widgets generates a positive externality on the society. The study claims that the added social benefit per unit of widget consumed is equivalent to S50. What is the socially efficient quantity of widgets that a regulator in this market would want to achieve as an equilibrium situation? a. b. c. d. e. What is the potential equilibrium price that would need to be offered so that producers are willing to supply the socially ideal quantity in your previous answer (part c)? f. If a regulator wanted to lead the market to that socially optimal outcome found above. Would she need to impose a tax or offer a subsidy? What should be the magnitude of the required tax or subsidy to achieve the socially optimal equilibrium allocation? g.

Explanation / Answer

f. Since the product leads to positive externality in the market, thus, regulator should offer a subsidy to make the society socially efficient in the production of widgets.

g. The subsidy should be equal to the added social benefit per unit of the widget. Thus, subsidy of $50 needs to be offered for socially optimum solution.

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