Can anyone help me to sovle this problem?Suppose that in the year 2000, the global demand for baskets was: QD(P) = 83-50PAnd, the global supply of baskets was: QS(P) = 50P – 17The net marginal cost external of producing baskets was:MCExternal_net = 0.25 + Q/100Quantity units are in trillions of “real baskets” where a real basket has a value of $ US in year2000 purchasing power.Benefit and cost units are in $US/baskets where dollars are in terms of year 2000 purchasingpower.a) Find the inverse demand for baskets and use this to find the consumers’ marginal benefit ofbaskets and call this the marginal benefit private. Note this is also the consumers’ maximummarginal willingness to pay (MWTP) for baskets. Find the inverse supply for baskets and usethis to find the producers’ marginal cost of baskets and call this the marginal private cost ofbaskets. Note this is also the producer’s minimum marginal willingness to accept (MWTA) forselling baskets. Plot these on a graph using graph paper. Find the market quantity and themarket price and label on your graph. Compare these with the value of the GWP and the priceof a basket in question 1.b) Add the marginal private cost to the net marginal external cost to get the net marginalcost social and plot both the marginal net external costs and marginal net social costs curves onthe graph. Be sure to label carefully.c) Use algebra to calculate the socially efficient quantity of baskets (i.e. the socially efficientreal GWP) and price. Label on your graph. Compare the market price and quantity with thesocially efficient price and quantity.d) At the socially efficient allocation, (QSE) use letters to label the following:i) $ total private benefits to consumers (total WTP)ii) $ net total external costs.iii) $ total private costs to producers (total WTA)iv) $ total private surplusv) $ net total social costs.vi) $ total social surplus.* You do NOT need to calculate here, just use the letters.e) Repeat question d) but do for the privately efficient allocation (i.e. the market allocation).f) Calculate the monetary total social surplus at the market allocation and at the socially efficientallocation. Calculate the total deadweight loss of the market. Given your calculation, is themarket allocation socially efficient? Explain in ONE sentence.g) What marginal Pigouvian tax per basket is required to correct the market? Calculate andillustrate on your graph being sure to show the new supply curve with the tax. Label the arearepresenting the total tax on the graph. Notice that the total tax collected is higher than the totalexternal cost at the efficient allocation. Hence, private parties are overpaying. Some of thismoney could be returned to the private parties as lump sum rebates or via income and corporatetax reductions. To make the tax more progressive, income tax reductions would be higher onlow-income groups. Suppose that the tax is revenue neutral, meaning that the governmentsreduce other taxes by same amount as the Pigouvian taxes levied. To make the above Pigouviantax revenue neutral, by how much would we need to reduce other taxes (ex. income andcorporate taxes)
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