Question

Consider an air basin with only two consumers, Huck and Matilda. Suppose Huck's demand for air quality is given by qH −1−p where p is Huck's marginal willingness to pay for air quality. Similarly, Matilda's demand is given by qM=2−2p. Air quality can be supplied according to q=p where p is the marginal cost of supply.

a. Graph the aggregate demand for air quality along with individual demands.
b. What is the efficient amount of air quality?

Answer 1

To graph the aggregate demand for air quality along with individual demands, we plot the quantity of air quality on the x-axis and the price on the y-axis. The aggregate demand is the sum of the individual demands. The efficient amount of air quality is found by setting the aggregate demand equal to the supply.

Step-by-step explanation:

To graph the aggregate demand for air quality along with individual demands, we need to plot the quantity of air quality on the horizontal axis (q) and the price on the vertical axis (p). For Huck's demand, qH = 1-p, and for Matilda's demand, qM = 2-2p. The aggregate demand is the sum of the two individual demands. Therefore, qA = qH + qM = (1-p) + (2-2p) = 3-3p. To find the efficient amount of air quality, we need to set the aggregate demand equal to the supply, so 3-3p = p. Solving for p, we get p = 0.75. Therefore, the efficient amount of air quality is q = 0.75.