3. The effect of negative externalities on the optimal quantityof 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 external cost of $450 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $450 per ton.

3. The effect of negative externalities on the optimal quantityof 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 external cost of $450 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $450 per ton.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Viral infections such as flu are highly contagious. The number of infections and thus the spread of the disease can be prevented by getting vaccinated. However, the decision to take vaccine is voluntary and some people choose not to go for it for various reasons.] [What type of externality occurs by getting vaccinated against contagious diseases? Explain your answer in 100 words or less. [In a diagram, show the market equilibrium quantity of the vaccine. Is the quantity also socially efficient? Explain in 100 words or less and demonstrate using the same diagram. [Suggest one method to achieve a socially efficient outcome. Explain your answer in 100 or less words.
The following graph represents the market for high-emissions cars. Answer this question assuming that the externality is not internalised. Which quantity is socially optimal (i.e. what is the efficient quantity)? What is the deadweight loss generated by the externality?
Address the question in the image.
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 $135 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 $135 per ton. 100 010 720 MSC 630 Supply 640 (MPC) 450 270 180 Demand (MPB) 7. QUANTITY (Tons of paper) The market equilibrium quantity is tons of paper, but the socially optimal quantity of paper production is tons. To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a per ton of paper. PRICE (Dollars per ton of…
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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…
3. The effect of negative externalities on the optimal quantityof 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 external cost of $385 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $385 per ton. PRICE (Dollars per ton of paper) 1100 990 880 770 660 550 440 330 220 110 0 0 ☐ 1 ☐ 2 3 4 5 QUANTITY (Tons of paper) O n Supply 8 (Private Cost) Demand (Private Value) 7 Social Cost (?) The market equilibrium quantity is 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. of $ per ton
Sh 13 Subject - economics
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 external cost of $105 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $105 per ton. PRICE (Dollars per ton of paper) 700 630 560 490 420 350 280 210 140 70 0 0 1 O O 2 ☐ ■ 3 O 4 5 QUANTITY (Tons of paper) ☐ 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost ?
Consider the market for bolts. Suppose that a hardware factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of bolts imposes a constant marginal external cost (MEC) of $75 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for bolts. Use the purple points (diamond symbol) to plot the marginal social costs (MS) curve when the marginal external cost is $75 per ton.
1. Briefly discuss some ways the government could ensure a market with a positive externality could encourage production of the socially optimal output. 2. Do you believe higher education provides our economy with a positive externality? Why or why not? Do you believe the steps that the federal government takes to encourage the socially optimal amount of higher education be produced/consumed is appropriate? Too much? Too little? Why? (Use appropriate economic theory to support your position.)
2. Efficiency in the presence of externalities Vaping imposes many external costs on society secondhand smoke, the adverse health burdens imposed on society, and so on. Therefore, the market equilibrium quiantity of vapes does not equal the socially optimal quantity. The following graph plots the demand for vapes (their private value), the supply of vapes (the private cost of producing them), and the social cost of vapes, including both the private cost and external costs. Use the block point (plus symbol) to indicate the market equilibrium quaneity Next, use the purple point (diamond symbol) to indicate the socially opamal quantity ? PRICE OF VAPES Demand (Private Value) QUANTITY OF VAPES Social Cost Supply (Private Cost) + Market Equilibrium Socially Optimal Level