Graph the following supply and demand curve:
Supply: P = 10 + .4Q
Demand: P = 50 - .4Q
What is the equilibrium price and quantity?
a. Suppose production of the good in question creates a negative externality equal to $8 per unit. Draw a new supply curve that represents the marginal cost to society. What is the socially optimal price and quantity?
b. Calculate the net benefit to society if the government imposes a pollution tax of $8 per unit.