3. Individual versus social costs and benefits Аа Аа In addition to providing private benefit to the individuals who purchase them, solar panels also benefit society as a whole by reducing global energy consumption. This additional benefit to society is known as a Because individuals who purchase solar panels bear the full cost but do not receive the full benefit of solar panel installations, the market equilibrium quantity of solar panels in an unsubsidized market is the socially optimal quantity. The graph below represents the annual private value (Private Value) of solar panels to consumers and the private cost (Private Cost) of solar panels to producers. Assume that, in addition to the benefit to individual buyers, the rest of society gets an additional $60,000 benefit from each house installed with solar panels. The social value (Social Value) of each solar panel installation is, therefore, $60,000 more than the private value at each quantity. Use the green line (triangle symbols) to graph the social value curve on the graph below. PRICE (Thousands of dollars) 200 Social Value Supply (Private Cost) 180 160 Points on new D 140 120 D with tax credit 100 80 60 40 Demand 20 (Private Value) 1 2 3 4 6 7 8 10 QUANTITY (Thousands of installations) Help Clear All
3. Individual versus social costs and benefits Аа Аа In addition to providing private benefit to the individuals who purchase them, solar panels also benefit society as a whole by reducing global energy consumption. This additional benefit to society is known as a Because individuals who purchase solar panels bear the full cost but do not receive the full benefit of solar panel installations, the market equilibrium quantity of solar panels in an unsubsidized market is the socially optimal quantity. The graph below represents the annual private value (Private Value) of solar panels to consumers and the private cost (Private Cost) of solar panels to producers. Assume that, in addition to the benefit to individual buyers, the rest of society gets an additional $60,000 benefit from each house installed with solar panels. The social value (Social Value) of each solar panel installation is, therefore, $60,000 more than the private value at each quantity. Use the green line (triangle symbols) to graph the social value curve on the graph below. PRICE (Thousands of dollars) 200 Social Value Supply (Private Cost) 180 160 Points on new D 140 120 D with tax credit 100 80 60 40 Demand 20 (Private Value) 1 2 3 4 6 7 8 10 QUANTITY (Thousands of installations) Help Clear All
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Individual versus
Transcribed Image Text:3. Individual versus social costs and benefits
Аа Аа
In addition to providing private benefit to the individuals who purchase them, solar panels also benefit society as a
whole by reducing global energy consumption. This additional benefit to society is known as a
Because individuals who purchase solar panels bear the full cost but do not receive the
full benefit of solar panel installations, the market equilibrium quantity of solar panels in an unsubsidized market is
the socially optimal quantity.
The graph below represents the annual private value (Private Value) of solar panels to consumers and the private
cost (Private Cost) of solar panels to producers. Assume that, in addition to the benefit to individual buyers, the rest
of society gets an additional $60,000 benefit from each house installed with solar panels. The social value (Social
Value) of each solar panel installation is, therefore, $60,000 more than the private value at each quantity.
Use the green line (triangle symbols) to graph the social value curve on the graph below.
PRICE (Thousands of dollars)
200
Social Value
Supply
(Private Cost)
180
160
Points on new D
140
120
D with tax credit
100
80
60
40
Demand
20
(Private Value)
1
2 3 4
6 7
8
10
QUANTITY (Thousands of installations)
Help
Clear All
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