The market for Soda was represented by the following demand and supply: Qd= -100P + 1150 and Qs= 400P +100.

1.     The market for Soda was represented by the following demand and supply:

Qd= -100P + 1150 and Qs= 400P +100. After the FDA required additional information on calories on labels, the cost to the Bottling Co. increased and the Supply shifted to Qs= 400P + 150

a.     What is the Pre-Regulation equilibrium quantity and price?

b.     What is the Post-Regulation Equilibrium price and quantity?

c.      What is the pre and post regulation producer surplus?

d.     Based on the change in producer surplus, do you think the supplier would have volunteered to provide label on calories information without it being required? Explain.

2.     Carbon Monoxide emissions increase in summer. Your State is considering two different abatement levels in summer and winter. MSB winter= 330-0.5 A and MSB summer = 140-0.2A Where A is the abatement level. The marginal cost of abatement is the same in both seasons MSC=.2A

a.     If the state established a uniform abatement standard of 500 tons annually (250 each ): what would be the value of MSC, MSB winter and MSB summer?

b.     If the state established a socially effective standard (equalized marginal social benefit), what would the value of A be in summer and in winter?

c.      Which of the above two models (part a, b) would you recommend? Why?

3.     A recycling program costs and benefits are modeled as follows : MSC = 70+0.5Q and MPB=350-.9Q and the externality MEB= 56 – .2Q

a.     Determine the private market solution.

b.     Determine The Marginal social benefit: The sum of private and external benefit.

c.      Determine the Socially optimal Q where MSB=MSC

d.     Is the socially optimal solution better? By how much? Explain.

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