3. The effect of negative externalities on the optimal quantity of consumption Consider the market for pharmaceuticals. Suppose that a pharmaceutical factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing additional pharmaceuticals imposes a constant per-unit external cost of $700. The following graph shows the demand (private value) curve and the supply (private cost) curve for pharmaceuticals. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $700 per unit. PRICE (Dollars per unit of pharmaceuticals) 1800 1600 1400 1200 1000 800 600 400 200 • 1 3 QUANTITY (Units of pharmaceuticals) 6 Supply Private Cost) Demand (Private Value) 4 Social Cost The market equilibrium quantity is units of pharmaceuticals, but the socially optimal quantity of pharmaceuticals production is units. To create an incentive for the firm to produce the socially optimal quantity of pharmaceuticals, the government could impose a per unit of pharmaceuticals.
3. The effect of negative externalities on the optimal quantity of consumption Consider the market for pharmaceuticals. Suppose that a pharmaceutical factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing additional pharmaceuticals imposes a constant per-unit external cost of $700. The following graph shows the demand (private value) curve and the supply (private cost) curve for pharmaceuticals. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $700 per unit. PRICE (Dollars per unit of pharmaceuticals) 1800 1600 1400 1200 1000 800 600 400 200 • 1 3 QUANTITY (Units of pharmaceuticals) 6 Supply Private Cost) Demand (Private Value) 4 Social Cost The market equilibrium quantity is units of pharmaceuticals, but the socially optimal quantity of pharmaceuticals production is units. To create an incentive for the firm to produce the socially optimal quantity of pharmaceuticals, the government could impose a per unit of pharmaceuticals.
Chapter8: Market Failure
Section: Chapter Questions
Problem 1P
Related questions
Question
Note:- Please don't simply copy and paste content from other
Do not provide the handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.
Answer completely.
![3. The effect of negative externalities on the optimal quantityof consumption
Consider the market for pharmaceuticals. Suppose that a pharmaceutical factory dumps toxic waste into a nearby river, creating a negative externality
for those living downstream from the factory. Producing additional pharmaceuticals imposes a constant per-unit external cost of $700. The following
graph shows the demand (private value) curve and the supply (private cost) curve for pharmaceuticals.
Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $700 per unit.
PRICE (Dollars per unit of pharmaceuticals)
2000
1800
1600
1400
1200
1000
800
600
400
200
O
0
D
2
QUANTITY (Units of pharmaceuticals)
6
Supply
(Private Cost)
Demand
(Private Value)
Social Cost
The market equilibrium quantity is units of pharmaceuticals, but the socially optimal quantity of pharmaceuticals production is units.
To create an incentive for the firm to produce the socially optimal quantity of pharmaceuticals, the government could impose a
per unit of pharmaceuticals.
of](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcc271c37-7049-492e-9ebc-3d91625d0855%2F62a50354-e9bd-4cdd-925f-168a963b5805%2F0z9z1wu_processed.jpeg&w=3840&q=75)
Transcribed Image Text:3. The effect of negative externalities on the optimal quantityof consumption
Consider the market for pharmaceuticals. Suppose that a pharmaceutical factory dumps toxic waste into a nearby river, creating a negative externality
for those living downstream from the factory. Producing additional pharmaceuticals imposes a constant per-unit external cost of $700. The following
graph shows the demand (private value) curve and the supply (private cost) curve for pharmaceuticals.
Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $700 per unit.
PRICE (Dollars per unit of pharmaceuticals)
2000
1800
1600
1400
1200
1000
800
600
400
200
O
0
D
2
QUANTITY (Units of pharmaceuticals)
6
Supply
(Private Cost)
Demand
(Private Value)
Social Cost
The market equilibrium quantity is units of pharmaceuticals, but the socially optimal quantity of pharmaceuticals production is units.
To create an incentive for the firm to produce the socially optimal quantity of pharmaceuticals, the government could impose a
per unit of pharmaceuticals.
of
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Exploring Economics](https://www.bartleby.com/isbn_cover_images/9781544336329/9781544336329_smallCoverImage.jpg)
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
![Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781337617383/9781337617383_smallCoverImage.gif)
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
![Microeconomics](https://www.bartleby.com/isbn_cover_images/9781337617406/9781337617406_smallCoverImage.gif)
![Exploring Economics](https://www.bartleby.com/isbn_cover_images/9781544336329/9781544336329_smallCoverImage.jpg)
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
![Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781337617383/9781337617383_smallCoverImage.gif)
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
![Microeconomics](https://www.bartleby.com/isbn_cover_images/9781337617406/9781337617406_smallCoverImage.gif)
![Principles of Microeconomics](https://www.bartleby.com/isbn_cover_images/9781305156050/9781305156050_smallCoverImage.gif)
Principles of Microeconomics
Economics
ISBN:
9781305156050
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
![Essentials of Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781337091992/9781337091992_smallCoverImage.gif)
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
![Principles of Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781305585126/9781305585126_smallCoverImage.gif)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning