Question

". For the chewing gum market, P M C=0.05 Q and P M B=6-0.05 Q, where private marginal costs (PMC) and private marginal benefits (PMB) are"

Answer 1

The market for cigarettes in equilibrium and the impact of negative externalities from second-hand smoking.

Step-by-step explanation:

In the market for cigarettes, assuming there are no laws banning smoking in public, the equilibrium private market price and quantity are labeled as Pm and Qm respectively. To illustrate the negative externality from second-hand smoking, we need to add the social optimal output and price, labeled as Pe and Qe, to the model. On the graph, the deadweight loss at the market output should be shaded in.