Suppose you are selling t-shirts at your own t-shirt stand. The supply and demand curves for t-shirts are given below.
P = 5 + 0.15Q P = 30 - 0.1Q
a) What are the equilibrium price and quantity for t-shirts?
b) If the process of making your t-shirts results in chemical waste that you dump in a nearby stream, creating $5 worth of damage to the environment per shirt, what is the socially optimal number of t-shirts for you to sell, and what is the socially optimal price?
c) What tax policy could the government use to assure that you sell the socially optimal number of t-shirts?