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 subsidy The market equilibrium quantity is tons of steel, but the socially efficient quantity of steel production is tax To create an incentive for the firm to produce the socially efficient quantity of steel, the government could impose a of steel. 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 $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
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 subsidy The market equilibrium quantity is tons of steel, but the socially efficient quantity of steel production is tax To create an incentive for the firm to produce the socially efficient quantity of steel, the government could impose a of steel. 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 $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
Chapter1: Making Economics Decisions
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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 $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
subsidy
The market equilibrium quantity is
tons of steel, but the socially efficient quantity of steel production is
tax
To create an incentive for the firm to produce the socially efficient quantity of steel, the government could impose a
of steel.
per ton
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 $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
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