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The Demand Curve and Supply Curve for a Good Are

question 52

Essay

The demand curve and supply curve for a good are given by QD = 100 - 5P and QS = 1.25P - 2.5. Suppose the production of this good generates a negative externality, where the external marginal cost is constant at $2. To achieve the socially optimal output level, the government wants to implement a quota. What size should the quota be?


Definitions:

Oscar Handlin

A prominent American historian and author known for his studies on immigration and the history of ethnicity in American life.

Democracy

A governance system where authority is given to the populace, who govern themselves either directly or by choosing representatives through elections.

Free Market

An economic system where prices for goods and services are determined by the open market and consumers, with minimal government intervention.

Wheeling, West Virginia

A city located in the Northern Panhandle of West Virginia, historically known as a significant industrial center and the location of the 1861 Wheeling Convention.

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