3. The effect of negative externalities on the optimal quantityof consumption Consider the market for electric cars. Suppose that a electric car manufacturing facility dumps sludge into a nearby river, creating a negative externality for those living downstream from the facility. Producing additional electric cars imposes a constant per-unit external cost of $210. The following graph shows the demand (private value) curve and the supply (private cost) curve for electric cars. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $210 per unit. (Dollars per unit of electric cars) PRICE 1400 1260 1120 980 840 700 560 420 280 140 0 0 O ☐ 1 n O ☐ ☐ The market equilibrium quantity is O 2 3 4 5 QUANTITY (Units of electric cars) 0 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost (?) units of electric cars, but the socially optimal quantity of electric car production is To create an incentive for the firm to produce the socially optimal quantity of electric cars, the government could impose a per unit of electric cars. units. of $
3. The effect of negative externalities on the optimal quantityof consumption Consider the market for electric cars. Suppose that a electric car manufacturing facility dumps sludge into a nearby river, creating a negative externality for those living downstream from the facility. Producing additional electric cars imposes a constant per-unit external cost of $210. The following graph shows the demand (private value) curve and the supply (private cost) curve for electric cars. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $210 per unit. (Dollars per unit of electric cars) PRICE 1400 1260 1120 980 840 700 560 420 280 140 0 0 O ☐ 1 n O ☐ ☐ The market equilibrium quantity is O 2 3 4 5 QUANTITY (Units of electric cars) 0 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost (?) units of electric cars, but the socially optimal quantity of electric car production is To create an incentive for the firm to produce the socially optimal quantity of electric cars, the government could impose a per unit of electric cars. units. of $
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section: Chapter Questions
Problem 3PA
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