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 $220 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 $220 per ton.
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 $220 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 $220 per ton.
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section: Chapter Questions
Problem 1PA
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Question
![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 $220 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 $220 per ton.
1100
990
Social Cost
880
770
660
Supply
(Private Cost)
550
440
Demand
330
(Private Value)
220
110
1
2
3
4
6
7
QUANTITY (Tons of steel)
PRICE (Dollars per ton of steel)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Faa00ebaa-23b9-4b28-a7ce-1aeaaf3b9d34%2F375063cb-4c5f-455e-8ecb-eb5f17fa9a01%2Fg08lblr_processed.png&w=3840&q=75)
Transcribed Image Text: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 $220 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 $220 per ton.
1100
990
Social Cost
880
770
660
Supply
(Private Cost)
550
440
Demand
330
(Private Value)
220
110
1
2
3
4
6
7
QUANTITY (Tons of steel)
PRICE (Dollars per ton of steel)
![The market equilibrium quantity is
tons of steel, but the socially optimal quantity of steel production is
tons.
To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a
of
per ton
of steel.
%24](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Faa00ebaa-23b9-4b28-a7ce-1aeaaf3b9d34%2F375063cb-4c5f-455e-8ecb-eb5f17fa9a01%2Fea9ekww_processed.png&w=3840&q=75)
Transcribed Image Text:The market equilibrium quantity is
tons of steel, but the socially optimal quantity of steel production is
tons.
To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a
of
per ton
of steel.
%24
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