An important way to reduce water pollution from farms is to plant a buffer zone between crops and the water. Economists estimate that for each bush there is a $20 gain in reduced pollution. Supply and demand schedules for the bushes are given below.
Price Demand Supply
$50 1,000 5,000
$40 2,000 4,000
$30 3,000 3,000
$20 4,000 2,000
$10 5,000 1,000
What is the market clearing equilibrium price and quantity?
What is the efficient quantity?
How would Pigou propose correcting this inefficiency?
Draw a diagram illustrating your answer.