00:01
Okay, so here we have a demand curve, and it's given by p equals 200 minus 2y.
00:12
The supply curve is given as p equals 2y plus 5, and we can draw them quantity of y and price of y.
00:27
The demand curve will be intersecting at 200 and 100 on the quantity axis and the supply curve intersects at five and it goes up to about here so here's our supply and here's our demand and we're asked to find the equilibrium quantity and price.
01:02
So we do that by setting the two curves equal to each other.
01:06
200 minus 2y equals 2y plus 5.
01:13
195 equals 4y.
01:16
Y equals 195 over 4, which i believe is 48 and 3 quarters.
01:24
And then if we plug that back into either curve so that's why price will be equal to two into two two y plus five so that would be 195 over two plus five and five is ten halves so we have two hundred and five halves so it's 102 102 .5 okay so we have our initial equilibrium at 48 48 and three quarters and 102 .5 and now we're asked what would happen if the production of widgets causes a pollution damage of five dollars per unit so find the economically efficient levels of price and quantity okay so the way you think about this is the supply curve isn't reflecting all of the costs to society just the cost to the the producer the firm whatever so um the societal cost is it is an an additional 5.
02:48
So if we want to reflect that on a curve, well, i'm making it too big there, but it would be the intersection of this curve should be at 10.
03:01
Oops, sorry.
03:03
Still have my eraser on.
03:08
The intersection of the curve should be at 10 now instead of 5, and the curve will be in parallel because at every quantity, the supply curve is just $10 higher.
03:30
So under this scenario, we can write the supply curve as p equals 2y plus 10 and we can just resolve for our new equilibrium.
03:51
I mean, clearly it's going to be lower quantity and higher price, but just how much? well, we can just set 200 minus 2y, that's the demand curve, unchanged, set that equal to 2y plus 10 now...