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 $420. 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 $420 per unit. ? PRICE (Dollars per unit of electricity) 1200 . 1080 900 840 720 600 480 360 240 120 0 0 1 3 2 4 QUANTITY (Units of electricity) The market equilibrium quantity is B Supply 6 (Private Cost). Demand (Private Value) 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 unit of electricity. units. of $ per

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 $420. 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 $420 per unit. ? PRICE (Dollars per unit of electricity) 1200 . 1080 900 840 720 600 480 360 240 120 0 0 1 3 2 4 QUANTITY (Units of electricity) The market equilibrium quantity is B Supply 6 (Private Cost). Demand (Private Value) 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 unit of electricity. units. of $ per

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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