Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant marginal external cost (MEC) of $100 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for paper. Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $100 per ton. 500 350 300 250 200 150 ༔ ༔ ༔⌘༔ ༔ ༔ ༔ ༔ 450 400 100 PRICE (Dollars per ton of paper) Π 50 ☐ 0 0 1 2 3 O 4 L QUANTITY (Tons of paper) ㅁ O ☐ Supply (MPC) 5 6 7 Demand (MPB) MSC The market equilibrium quantity is tons of paper, but the socially optimal quantity of paper production is tons. To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of paper. per ton Grade It Now Save & Continue Continue without saving
Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant marginal external cost (MEC) of $100 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for paper. Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $100 per ton. 500 350 300 250 200 150 ༔ ༔ ༔⌘༔ ༔ ༔ ༔ ༔ 450 400 100 PRICE (Dollars per ton of paper) Π 50 ☐ 0 0 1 2 3 O 4 L QUANTITY (Tons of paper) ㅁ O ☐ Supply (MPC) 5 6 7 Demand (MPB) MSC The market equilibrium quantity is tons of paper, but the socially optimal quantity of paper production is tons. To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of paper. per ton Grade It Now Save & Continue Continue without saving
Chapter1: Making Economics Decisions
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Transcribed Image Text:Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living
downstream from the factory. Producing an additional ton of paper imposes a constant marginal external cost (MEC) of $100 per ton. The following
graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for paper.
Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $100 per ton.
500
350
300
250
200
150
༔ ༔ ༔⌘༔ ༔ ༔ ༔ ༔
450
400
100
PRICE (Dollars per ton of paper)
Π
50
☐
0
0
1
2
3
O
4
L
QUANTITY (Tons of paper)
ㅁ
O
☐
Supply
(MPC)
5
6
7
Demand
(MPB)
MSC
The market equilibrium quantity is
tons of paper, but the socially optimal quantity of paper production is
tons.
To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a
of paper.
per ton
Grade It Now
Save & Continue
Continue without saving
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