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 $280. 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 $280 per unit.
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 $280. 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 $280 per unit.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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 $280. 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 $280 per unit.
PRICE (Dollars per unit of electric cars)
800
720
640
560
480
400
320
240
160
80
0
0
O
■
1
O
■
O
■
O
O
2
3
4
5
QUANTITY (Units of electric cars)
Supply
(Private Cost)
Demand
(Private Value)
6 7
Social Cost
?
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