Consider the market for electric cars. Suppose that a electric car manufacturing facility dumps sludge into a nearby river, creating a negative externality for those living downstream from the facility. Producing additional electric cars imposes a constant per-unit external cost of $700. The following graph shows the demand (private value) curve and the supply (private cost) curve for electric cars. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $700 per unit. PRICE (Dollars per unit of electric cars) 2000 1800 1600 1400 1200 1000 800 600 400 200 0 O ☐ 1 O O 0 ■ The market equilibrium quantity is O ☐ 2 3 4 5 QUANTITY (Units of electric cars) ☐ Supply (Private Cost) 6 Demand (Private Value) 7 Social Cost ? units of electric cars, but the socially optimal quantity of electric car production is To create an incentive for the firm to produce the socially optimal quantity of electric cars, the government could impose a per unit of electric cars. units. of $

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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Consider the market for electric cars. Suppose that a electric car manufacturing facility dumps sludge into a nearby river, creating a negative
externality for those living downstream from the facility. Producing additional electric cars imposes a constant per-unit external cost of $700. The
following graph shows the demand (private value) curve and the supply (private cost) curve for electric cars.
Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $700 per unit.
PRICE (Dollars per unit of electric cars)
2000
1800
1600
1400
1200
1000
800
600
400
200
0
Supply
(Private Cost)
X
0
1
2
3
4
5
QUANTITY (Units of electric cars)
The market equilibrium quantity is
6
Demand
(Private Value)
7
Social Cost
?
units of electric cars, but the socially optimal quantity of electric car production is
To create an incentive for the firm to produce the socially optimal quantity of electric cars, the government could impose a
per unit of electric cars.
units.
of $
Transcribed Image Text:Consider the market for electric cars. Suppose that a electric car manufacturing facility dumps sludge into a nearby river, creating a negative externality for those living downstream from the facility. Producing additional electric cars imposes a constant per-unit external cost of $700. The following graph shows the demand (private value) curve and the supply (private cost) curve for electric cars. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $700 per unit. PRICE (Dollars per unit of electric cars) 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Supply (Private Cost) X 0 1 2 3 4 5 QUANTITY (Units of electric cars) The market equilibrium quantity is 6 Demand (Private Value) 7 Social Cost ? units of electric cars, but the socially optimal quantity of electric car production is To create an incentive for the firm to produce the socially optimal quantity of electric cars, the government could impose a per unit of electric cars. units. of $
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