Pa = 5-Q Ps= 2 + 2Q Producing dry cleaning creates ground water pollution with a constant marginal external cost of 1.2. Question: (d) What is the equilibrium price and quantity if the government decides to impose a per-unit tax of $1.20 is added to dry cleaning? (e) Does the tax cause a Pareto improvement? (Use the definition of a Pareto improvement to justify the answer.)

Pa = 5-Q Ps= 2 + 2Q Producing dry cleaning creates ground water pollution with a constant marginal external cost of 1.2. Question: (d) What is the equilibrium price and quantity if the government decides to impose a per-unit tax of $1.20 is added to dry cleaning? (e) Does the tax cause a Pareto improvement? (Use the definition of a Pareto improvement to justify the answer.)

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter16: Externalities, The Environment, And Natural Resources

Section: Chapter Questions

Problem 4DQ

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