The market for a particular chemical, called Negext is described by the following equations:
Qd = 100 –5P
A Suppose that the government restricts emissions to 100 units of pollution. Graph the market under this constraint. Find the new equilibrium price and quantity and show them on your graph.
B Suppose that instead of restricting pollution, the government imposes a tax on producers equal to $5 for each unit of chemical produced. Calculate the new equilibrium price and quantity and the cost of pollution.
C Which of the two policies would you recommend? Why?
Sample Solution
