Question

Assume that the market demand curve for pesticides is given by the following equation: P(D) = 1000 − 2Q(D), and the market supply curve, which is equal to the aggregated marginal cost curve of all producers, is given by, P(S) = 200 + 2Q(S). Pesticide production, however, is associated with harmfulside effects on both workers and nearby households and firms. The total damage to the surroundings is proportional to output according to: SMC= 250 + 2Q.

Without any government interference into pesticide production, what is the market price of pesticides. What is the equilibrium quantity consumed and produced? Assume that prices are expressed in US dollars per unit of pesticides.

Answer 1

The market price of pesticides without any government interference is $200, and the equilibrium quantity consumed and produced is 400 units.

Step-by-step explanation:

The market price of pesticides without any government interference can be determined by finding the point where the market demand curve and the market supply curve intersect. In this case, the market demand curve is represented by the equation P(D) = 1000 - 2Q(D) and the market supply curve is represented by the equation P(S) = 200 + 2Q(S). To find the equilibrium quantity consumed and produced, we need to set the quantity demanded equal to the quantity supplied:

1000 - 2Q(D) = 200 + 2Q(S)

Simplifying this equation, we get:

Q(D) + Q(S) = 400

This equation represents the equilibrium quantity. To find the equilibrium price, we can substitute the equilibrium quantity into either the demand or supply equation. Let's use the demand equation:

P(D) = 1000 - 2Q(D)

P(D) = 1000 - 2(400)

P(D) = 200

Therefore, the market price of pesticides without any government interference is $200, and the equilibrium quantity consumed and produced is 400 units.