17. Consider the following market for steel where there are two groups of producers with group B producers being more productive than group A producers. Due to the production cost difference among these groups, each group has the following supply function for steel:
and
where p being the unit price of steel (“won” is the unit of money). Producing one unit of steel generates one unit of pollution (negative externality) which costs 20 won for the society. Demand for steel is given by
A) Calculate the equilibrium market price of steel and the equilibrium amount of steel in the market.
B) Due to political pressure of environmentalists, the government has decided to cut down the pollution unit generated by steel industry by 30 units. What is the Pigovian tax (per unit of pollution) that will limit the pollution of this industry by 30 units.
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