Question

Suppose the market demand function for newspapers is given by QD=90-3P. In the production of newspapers, several chemicals are released into the atmosphere. The supply function for newspapers is given by QS=2P-30-T, where T represents the external cost created in the production process for newspapers.

a. Find the equilibrium price and quantity that would emerge in the private market for newspapers. (HINT: Set T=0)

Answer 1

The equilibrium price in the private market for newspapers is $24, and the equilibrium quantity is 18 newspapers. This is determined by setting the demand and supply functions equal to each other and solving for the price and quantity.

Step-by-step explanation:

To find the equilibrium price and quantity in the private market for newspapers, we can set the demand and supply function equal to each other. Given that the demand function for newspapers is QD=90-3P and the supply function is QS=2P-30-T, and setting T=0 for the private market, we have:

QD = QS

90 - 3P = 2P - 30

Adding 3P to both sides and adding 30 to both sides yields:

5P = 120

Dividing both sides by 5 gives us the equilibrium price:

P = 24

To find the equilibrium quantity, we substitute P = 24 into either the demand or supply equation:

QD = 90 - 3(24)

QD = 90 - 72

QD = 18

Therefore, the equilibrium quantity is 18 newspapers and the equilibrium price is $24 per newspaper.