5. The effect of external costs on the efficient level 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 $245 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 $245 per ton. 700 630 Social Cost 560 490 420 350 Supply (Private Cost) 280 210 Demand 140 (Private Value) 70 1 2 3 4 5 6 QUANTITY (Tons of bolts) The market equilibrium quantity is tons of bolts, but the socially optimal quantity of bolt production is tons. PRICE (Dollars per ton of bolts)

5. The effect of external costs on the efficient level 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 $245 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 $245 per ton. 700 630 Social Cost 560 490 420 350 Supply (Private Cost) 280 210 Demand 140 (Private Value) 70 1 2 3 4 5 6 QUANTITY (Tons of bolts) The market equilibrium quantity is tons of bolts, but the socially optimal quantity of bolt production is tons. PRICE (Dollars per ton of bolts)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Please explain both statements in detail with graphs and examples. "When external benefits exist, maximizing private profits produces less than the social optimum" and "when external costs exist, maximizing private profits produces more than the social optimum".
Consider the market for steel. Suppose that a steel manufacturing plant dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the plant. Producing an additional ton of steel imposes a constant external cost of $165 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $165 per ton. 1100 990 Social Cost 880 770 Supply (Private Cost) 660 550 440 330 220 Demand 110 (Private Value) 1 2 4 7 QUANTITY (Tons of steel) PRICE (Dollars per ton of steel)
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Sh 13 Subject - economics
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The graph shows the unregulated market for electricity. Suppose that at every quantity produced, the marginal external cost of electricity equals the marginal private cost of production. To show the market outcome, draw the following four items on the graph: 1. Draw a point to show the marginal social cost when the utility produces 500 kilowatts per day. Label it 1. 2. Draw the marginal social cost curve. Label it MSC . 3. Draw a point to show the electricity produced and its marginal social cost. Label it 2. 4. Draw a shape to show the deadweight loss created. Label it DWL . >>> Draw only the objects specified in the question.
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On graph Price 150,300,450 , 600,.................1500 Quantity 0,1,2,3,4,5...