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 marginal external cost (MEC) of $165 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for steel. Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $165 per ton. 1100 990 880 770 O n Supply MSC

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 marginal external cost (MEC) of $165 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for steel. Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $165 per ton. 1100 990 880 770 O n Supply MSC

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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!
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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 $315 per ton. The following graph shows the demand (marginal private benefit) curve and the supply (marginal private cost) curve for steel. Use the purple points (diamond symbol) to plot the marginal social cost curve when the external cost is $315 per ton. PRICE (Dollars per ton of steel) 900 810 720 630 540 450+ Supply (MPC) 360 270 180 90 0 0 1 2 3 4 QUANTITY (Tons of steel) Demand (MPB) 5 6 7 Marginal Social Cost The market equilibrium quantity is tons of steel, but the socially efficient quantity of steel production is tons. To create an incentive for the firm to produce the socially efficient quantity of steel, the government could impose a of steel. per ton