The Market for Bathroom Cleaners Can Be Defined by This

question 45

Essay

The market for bathroom cleaners can be defined by this set of equations:
Q_d = 24 - 2P
Q_s = -4 + 2P
where P is the price of bathroom cleaners in dollars, and Q is quantity in thousands. When bathroom cleaners are washed down the drain, they cause environmental poisoning. The government estimates that the external cost related to the use of each container of bathroom cleaner is $3 and is considering imposing a tax of $3 on the producers of the bathroom cleaner. Using this information, answer the following questions.
a. What are the market price and market quantity in the bathroom cleaner market?
b. What is the social cost of this quantity of bathroom cleaner?
c. If producers are charged a tax of $3, this would cause the supply curve to the shift to the left, and the new equation for the supply curve would be Q_s = -4 + 2(P - 3). What is the efficient quantity traded in this market as a result of the tax?
d. Draw a graph to illustrate the old and new equilibriums in this market (before and after the tax).
e. What is the dollar amount of the deadweight loss that would be removed from this market as a result of the tax?

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Definitions:

Grammatical Aspects

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The process by which the brain organizes and interprets sensory information.

Cognitive Schema

Mental frameworks that help individuals organize and interpret information, influencing perception and understanding of the world.