Consider the market for electricity. Suppose that a power plant dumps byproducts into a nearby river, creating a negative externality for those living downstream from the plant. Producing additional electricity 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 electricity. 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 electricity) 2000 1800 1600 1400 1200 1000 800 600 400 200+ 0 0 1 2 4 5 QUANTITY (Units of electricity) 3 The market equilibrium quantity is 3.5 6 Supply (Private Cost) Demand (Private Value) H 7 Social Cost units of electricity, but the socially optimal quantity of electricity production is To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose a subsidy units. $500 OF

Consider the market for electricity. Suppose that a power plant dumps byproducts into a nearby river, creating a negative externality for those living downstream from the plant. Producing additional electricity 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 electricity. 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 electricity) 2000 1800 1600 1400 1200 1000 800 600 400 200+ 0 0 1 2 4 5 QUANTITY (Units of electricity) 3 The market equilibrium quantity is 3.5 6 Supply (Private Cost) Demand (Private Value) H 7 Social Cost units of electricity, but the socially optimal quantity of electricity production is To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose a subsidy units. $500 OF

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose the demand for an industrial product is given by P equals 300 minus 2 Q , and the supply is given by P equals Q . Suppose that the pollution due to the production of this good imposes a per unit cost of c equals 3 on society. What type of externality is this, and what curve represents this externality being accounted for (social cost or social demand curve)? A. This is a positive production externality. The social supply curve would be P equals 3 plus Q. B. This is a negative consumption externality. The social demand curve would be P equals 97 minus Q. C. This is a negative production externality. The social supply curve would be P equals 3 plus Q. D. This is a positive consumption externality. The social demand curve would be P equals 103 minus Q.
Which of the following policies could help the government achieve the efficient outcome? Check all that apply. Introduce emission taxes Offer a subsidy to consumers equal to the vertical distance between the marginal private benefit curve and the marginal social benefit curve Implement tradable pollution permits Offer a subsidy equal to the price at the efficient outcome Offer a subsidy to producers equal to the vertical distance between the marginal private benefit curve and marginal social benefit curve
The following graph shows the externalities in the market of papers. Apparently, there are negative externalities in the production of paper. The Marginal External Cost is estimated to be a constant $10 for all quantities. MSC S = MPC 110 105 100 95 Price, Benefit, and Cost (Dollars) D D m 4.5 5 Tons of Paper per Year (Millions) i. Explain how we can get the MSC. U D = MSB
The following is a copy of the information from Question 1: Consider Product NE, which has a negative externality associated with its production and use ( i.e., the “Incidental Cost” ( IC) of each unit of Product NE is greater than zero). You are told that : * The “Efficient” Output of Product NE = 9000 units * The Free-Market Equilibrium Output of Product NE = 10,000 units * The Consumer’s Surplus + Producer’s Surplus on Unit Number 6000 ( i.e., on that one unit ALONE) is equal to $ 70 ( i.e., the sum of CS + PS = $ 70) * The Cumulative Surplus on the first 9000 units produced is equal to $ 175,000 ( i.e., the sum of the surplus( to society) on ALL 9000 units adds up to $ 175,000) Is the Cumulative Surplus on the first 10,000 units ( i.e., ALL 10,000 units together) greater than $ 175,000, less than $ 175,000, or exactly equal to $ 175,000 ? a. Greater Than $…
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)
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 marginal external cost (MEC) of $75 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for bolts. Use the purple points (diamond symbol) to plot the marginal social costs (MS) curve when the marginal external cost is $75 per ton.
Explain how externalities can be solved.
Calculate private market equilibrium and the socially optimal equilibrium for the following negative production externality. (note: demand and supply functions are already in the inverse format) Demand: P = 100 - Q Supply: P=-50 + 2Q Marginal External Cost: MEC = 2Q Private Market Equilibrium = Socially Optimal Equilibrium = (enter your responses rounded to a whole number)
I chose option D and got this wrong. I thought that when you had a positive externality The demand curve move to the right. Wouldn’t this mean that the level of output and the price would be greater than the free market ones? can you explain how my answer is wrong? What is correct?
This is an end-of-chapter problem that I'm struggling with! thanks!
Consider a market with the following supply and demand. (It may help to draw a graph for these questions.) P 5 6 7 8 9 10 11 12 13 14 QS 200 300 400 500 600 700 800 900 1000 1100 QD 800 750 700 650 600 550 500 450 400 350 If there is an external cost of $3, what is the efficient quantity? If there is an external benefit of $3, what is the efficient quantity? For the remaining questions assume that there is a $3 external COST. If the government wants to get the efficient quantity with a per/unit tax, how much should the tax be? Now imagine that they use tradable allowances. If they cap the quantity at 400 what would the value of these allowance be in the market? (Assume the market is perfectly competitive and that "one allowance" lets you…
In the market for widgets, consumers have a market demand (marginal benefit) curve of P = MB = 250 - Q. In this problem, there is no distinction between private and social marginal benefit. The widget suppliers have a market supply (private marginal cost) curve of P = MC Private = 100+ Q. The production of widgets generates a negative externality in the form of pollution, with marginal external cost of X = 50. Due to this externality, there will be a difference between private and social marginal cost. Questions Analyze the following scenarios describing possible outcomes in the market for widgets. Efficient Outcome Find the equation for social marginal cost (MCsocial), using the information above. Determine the efficient quantity (Q*). AGEC 3503 1 ● HW7 - Negative Externalities Calculate the joint surplus (JS*), total external cost (TX*), and the total surplus (TS*) based on the efficient quantity. Equilibrium Outcome Find the market equilibrium, defined by the market quantity (Q) and…