(a) Draw a kinked demand curve and explain how a change in marginal costs may not affect the price in the market

(a) Using appropriate diagrams compare the level of production when there is a positive production externality with the production level when there is a negative production externality. How can the resulting inefficient production levels be corrected? 

 With respect to the demand and supply analysis, discuss the Walrasian equilibrium and the Walrasian stability condition.

Consider Figure 1, where DD and D’D’ represent the two different demand curves for a commodity in two different markets. Compare the two demand curves in terms of the price elasticity of demand.

Consider Figure 1, where DD and D’D’ represent the two different demand curves for a commodity in two different markets. Compare the two demand curves in terms of the price elasticity of demand.

B A Quantity Price

 Using appropriate diagrams compare the level of production when there is a positive production externality with the production level when there is a negative production externality. How can the resulting inefficient production levels be corrected?

Illustrate with the help of a diagram, higher the price elasticity of supply, larger will be the per unit tax burden borne by the consumers.