3. The effect of negative externalities on the optimal quantity of consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant marginal external cost (MEC) of $175 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for paper. Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $175 per ton. PRICE (Dollars per ton of paper) 500 450 400 350 300 250 200 150 100 50 0 0 O O 2 0 3 U 5 QUANTITY (Tons of paper) The market equilibrium quantity is O O 6 Supply (MPC) Demand (MPB) 7 MSC tons of paper, but the socially optimal quantity of paper production is To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of paper. tons. per ton 3. The effect of negative externalities on the optimal quantity of consumptionConsider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those livingdownstream from the factory, Producing an additional ton of paper imposes a constant marginal external cost (MEC) of $175 per ton. The followinggraph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for paper.Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $175 per ton.?PRICE (Dollars per ton of paper)5004504003002502001501005000012OnUThe market equilibrium quantity isCQUANTITY (Tons of paper)O Supply(MPC)6Demand.(MPB)7MSCtons of paper, but the socially optimnal quantity of paper production isTo create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose aof paper.tons.per ton

Equilibrium is where the demand curve intersects the supply curve. Socially optimal level of output…

Answered: 3. The effect of negative externalities…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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3. The effect of negative externalities on the optimal quantity of consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant marginal external cost (MEC) of $175 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for paper. Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $175 per ton. PRICE (Dollars per ton of paper) 500 450 400 350 300 250 200 150 100 50 0 0 O O 2 0 3 U 5 QUANTITY (Tons of paper) The market equilibrium quantity is O O 6 Supply (MPC) Demand (MPB) 7 MSC tons of paper, but the socially optimal quantity of paper production is To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of paper. tons. per ton

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