The demand for honey is given by P=120-2Q and the supply of
honey is given by P=30+2Q. The production of honey generates a
positive production externality equal to Q, on the local growers of
blueberries because bees from the honey farm pollinate the
blueberry plants.
Part A: To achieve an efficient level of trade
in the honey market, I suggest:
A) a subsidy to the blueberry farmers
B) a tax on the honey consumers
C) a tax on the honey farmers
D) a subsidy to the honey farmers
E) a tradeable permit for the production of blueberries
Part B: The tax, subsidy, or tradeable
permit that you suggested in question 2 should be equal
to
A) 35
B) 25
C) 20
D) 40
E) 30
The demand for honey is given by P=120-2Q and the supply of honey is given by P=30+2Q. The production of honey generates
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