Question

C. assume that we are back to talking about bags of oranges (a private good), but that the government has decided that tossed orange peels impose a negative externality on the public that must be rectified by imposing a $4-per-bag tax on sellers. what is the new equilibrium price? p* = $ . what is the new equilibrium quantity? q* = bag(s). if the new equilibrium quantity is the optimal quantity, by how many bags were oranges being overproduced before? q* = bag(s).

Answer 1

If the government has decided that tossed orange peels impose a negative on the public that must be rectified by imposing a $4 per bag, then the new equilibrium price is, p* = $9 ( when the quantity of bag is 1) In that time the new equilibrium quantity is, q* = 5 bag(s). If the new equilibrium quantity (5) is the optimal quantity, before some bags were oranges being overproduced that is, q* = 1 bag(s)