The Market for Aquarium Cleaners Can Be Defined by the Following

Essay

The market for aquarium cleaners can be defined by the following set of equations:
Q_d = 40 - 3P
Q_s = -20 + 3P
P is the price of aquarium cleaners in dollars, and Q is quantity in thousands. After their use, aquarium cleaners get washed down the drain, and these cleansers increase the mineral content in streams and rivers, thus increasing the fish population. The government estimates that the external benefit related to the use of each container of aquarium cleaner is $3 and is considering a subsidy of $3 per container of the aquarium cleaner. Using this information, answer the following questions.
a. What are the market price and market quantity in the aquarium cleaner market?
b. What is the social benefit of each container of aquarium cleaner?
c. If consumers are offered a subsidy of $3, this would cause the demand curve to shift to the right, and the new equation for the demand curve would be Q_d = 40 - 3(P - 3). What is the efficient quantity traded in this market as a result of this subsidy?
d. Draw a graph to illustrate the old and new equilibriums in this market (before and after the subsidy).
e. What is the dollar amount of the deadweight loss that has been removed from this market as a result of the subsidy?