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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 extenal cost of $525 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 $s25 per ton. 1500 1350 Social Cost 1200 1050 900 Supply (Private Cost) 750 600 450 Demand (Private Value) 300 150 QUANTITY (Tons of bolts) The market equilibrium quantity is tons of bolts, but the socially optimal quantity of bolt production is tons. PRICE(Dollars perton of bolts)

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 extenal cost of $525 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 $s25 per ton. 1500 1350 Social Cost 1200 1050 900 Supply (Private Cost) 750 600 450 Demand (Private Value) 300 150 QUANTITY (Tons of bolts) The market equilibrium quantity is tons of bolts, but the socially optimal quantity of bolt production is tons. PRICE(Dollars perton of bolts)

Principles of Microeconomics
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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i am having trouble with this question macroeconmics chapter 5 question 5

### The Effect of Negative Externalities on the Optimal Quantity of 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 $525 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 $525 per ton.** #### Graph: Price vs. Quantity - **X-Axis (Horizontal Axis):** Quantity (Tons of bolts) - **Y-Axis (Vertical Axis):** Price (Dollars per ton of bolts) **Curves in the Graph:** 1. **Demand (Private Value):** Represented by a downward-sloping blue line. 2. **Supply (Private Cost):** Represented by an upward-sloping yellow line. 3. **Social Cost:** Represented by purple diamonds. **Details:** The demand curve shows the maximum price consumers are willing to pay for each quantity of bolts, and it slopes downward. The supply curve indicates the minimum price that producers are willing to accept, and it slopes upward. The social cost curve includes the additional external cost ($525 per ton) imposed on society due to the negative externality. The market equilibrium quantity is represented by the intersection of the demand and supply curves without considering external costs. To find the socially optimal quantity, the external cost is added to the supply curve, resulting in the social cost curve. **Questions:** - **The market equilibrium quantity is** ___ tons of bolts. - **The socially optimal quantity of bolt production is** ___ tons.
Transcribed Image Text:### The Effect of Negative Externalities on the Optimal Quantity of 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 $525 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 $525 per ton.** #### Graph: Price vs. Quantity - **X-Axis (Horizontal Axis):** Quantity (Tons of bolts) - **Y-Axis (Vertical Axis):** Price (Dollars per ton of bolts) **Curves in the Graph:** 1. **Demand (Private Value):** Represented by a downward-sloping blue line. 2. **Supply (Private Cost):** Represented by an upward-sloping yellow line. 3. **Social Cost:** Represented by purple diamonds. **Details:** The demand curve shows the maximum price consumers are willing to pay for each quantity of bolts, and it slopes downward. The supply curve indicates the minimum price that producers are willing to accept, and it slopes upward. The social cost curve includes the additional external cost ($525 per ton) imposed on society due to the negative externality. The market equilibrium quantity is represented by the intersection of the demand and supply curves without considering external costs. To find the socially optimal quantity, the external cost is added to the supply curve, resulting in the social cost curve. **Questions:** - **The market equilibrium quantity is** ___ tons of bolts. - **The socially optimal quantity of bolt production is** ___ tons.
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