3. The effect of negative externalities on the optimal quantityof consumption 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 external cost of $140 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for bolts. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $140 per ton. ? PRICE (Dollars per ton of bolts) 400 360 320 280 240 200 160 120 80 40 0 U U 1 2 O ☐ 0 The market equilibrium quantity is O 3 QUANTITY (Tons of bolts) 0 Supply (Private Cost) Demand (Private Value) 7 Social Cost tons of bolts, but the socially optimal quantity of bolt production is tons. To create an incentive for the firm to produce the socially optimal quantity of bolts, the government could impose a of bolts. of per ton

3. The effect of negative externalities on the optimal quantityof consumption 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 external cost of $140 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for bolts. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $140 per ton. ? PRICE (Dollars per ton of bolts) 400 360 320 280 240 200 160 120 80 40 0 U U 1 2 O ☐ 0 The market equilibrium quantity is O 3 QUANTITY (Tons of bolts) 0 Supply (Private Cost) Demand (Private Value) 7 Social Cost tons of bolts, but the socially optimal quantity of bolt production is tons. To create an incentive for the firm to produce the socially optimal quantity of bolts, the government could impose a of bolts. of 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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The following graph shows the externalities in the market of papers. Apparently, there are negative externalities in the production of paper. The Marginal External Cost is estimated to be a constant $10 for all quantities. MSC S = MPC 110 105 100 95 Price, Benefit, and Cost (Dollars) D D m 4.5 5 Tons of Paper per Year (Millions) i. Explain how we can get the MSC. U D = MSB
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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
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, 1500 PRICE (Dollars per ton of paper) 1350 1200 1050 900 750 600 450 300 150 0 D O QUANTITY (Tons of paper) Supply (Private Cost) The market equilibrium quantity is Demand (Private Value) Social Cost 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
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.)