Suppose unregulated production of pesticides results in an equilibrium price and quantity of 400 and 1,000 tons per day, respectively, and a marginal external cost of 10 a ton.
a) If the government were to eliminate the external cost by using taxes, what should the tax equal?
b) Would the government action described above affect the quantity of pesticides produced? If yes, how? If no, why not?
Question 2
The WaveHouse on Mission Beach in San Diego features the Bruticus Maximus, a ten foot wave, which tests the skills of even the most talented surf and wake board riders on the planet.
WaveHouse is the only place in San Diego where this service is offered. You can ride B. Max for 40 for the first hour, 33 for the second hour, and 26 for the third hour. Why would WaveHouse charge different prices for each subsequent hour of riding? A) to capture consumer surplus among groups of buyers
B) to capture consumer surplus among units of a good
C) to create customer loyalty
D) to encourage skill development
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