The Demand Curve and Supply Curve for a Good Are

question 9

Multiple Choice

The demand curve and supply curve for a good are given by Q^D = 100 - 5P and Q^S = 1.25P - 2.5. Suppose the production of this good creates a negative externality, where the external marginal cost is constant at $2. To achieve the socially optimal output level, the government can implement a tax in the amount of $____.

• A) 3.00
• B) 2.50
• C) 2.00
• D) 1.50