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 $210 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 $210 per ton. PRICE (Dollars per ton of bolts) 600 540 480 420 360 300 240 180 120 60 0 0 O ☐ 1 0 ☐ 2 3 4 5 QUANTITY (Tons of bolts) The market equilibrium quantity is ☐ Supply (Private Cost) 6 Demand (Private Value) 7 Social Cost ? tons of bolts, but the socially optimal quantity of bolt production is tons.
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 $210 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 $210 per ton. PRICE (Dollars per ton of bolts) 600 540 480 420 360 300 240 180 120 60 0 0 O ☐ 1 0 ☐ 2 3 4 5 QUANTITY (Tons of bolts) The market equilibrium quantity is ☐ Supply (Private Cost) 6 Demand (Private Value) 7 Social Cost ? tons of bolts, but the socially optimal quantity of bolt production is tons.
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section: Chapter Questions
Problem 1PA
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Transcribed Image Text: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 $210 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 $210 per ton.
PRICE (Dollars per ton of bolts)
600
540
480
420
360
300
240
180
120
60
0
0
O
1
O
2
U
3
O
4
5
QUANTITY (Tons of bolts)
The market equilibrium quantity is
0
O
6
Supply
(Private Cost)
Demand
(Private Value)
7
Social Cost
tons of bolts, but the socially optimal quantity of bolt production is
tons.
ہے
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