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3. The car market is a significant contributor to ground level ozone. Assume that ozone...

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Accounting

3. The car market is a significant contributor to ground level ozone. Assume that ozone is produced as a by-product during the assembly of cars as well as the end use for cars during combustion especially in metropolitan areas.

a.Given the above scenario, is the equilibrium level of cars in the market too much or too little compared to the social optimum? Explain why this occurs. Support your answer by drawing the private and social, marginal cost and marginal benefit curves for cars below. Identify the deadweight loss if any exists.

b.Identify a regulation that the government can use to achieve the socially optimal level of gasoline. Explain how this regulation works.

c.Explain how the Coase theorem could work to achieve the optimal level of ozone emissions. Enumerate two major drawbacks that hinders its applicability in real life for this particular problem.

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