Refer to Figure 5-11. S1 represents the supply curve that ...

[james0929]

Refer to Figure 5-11. S1 represents the supply curve that reflects the private cost of production and S2 represents the supply curve that reflects the social cost of production.
 
  One way to internalize the external cost generated by utilities is to impose a Pigovian tax on the production of electricity. What is the size of the Pigovian tax that will internalize the cost of the externality?
  A) P2-P0 B) P1-P0 C) P2-P1 D) P0

Question 2

The graph below represents the market for lychee nuts. The equilibrium price is 7.00 per bushel, but the market price is 5.00 per bushel.
 
  Identify the areas representing consumer surplus, producer surplus, and deadweight loss at the equilibrium price of 7.00 and at the market price of 5.00.

[spencer.martell]

Answer to Question 1

A

Answer to Question 2

At the equilibrium price of 7.00:
Consumer surplus is represented by area A + B.
Producer surplus is represented by area C + D + E.
There is no deadweight loss.

At the market price of 5.00:
Consumer surplus is represented by area A + C.
Producer surplus is represented by area E.
Deadweight loss is represented by area B + D.

[james0929]

Thank you

[spencer.martell]

No problemo