Consider the market illustrated in the figure to the right for wood from a forest. Suppose the trees are a common resource. Supply curve S, represents the private cost of production and demand curve D₁ represents the private benefit from consumption. Show how the private market overuses common resources. 1.) Use the line drawing tool to first draw either a new supply (S₂) or demand (D₂) curve showing the true cost of cutting trees. Properly label this line. 2.) Use the point drawing tool to indicate the actual price and quantity in the private market. Label this point 'Actual equilibrium'. 3.) Use the point drawing tool to indicate the efficient equilibrium price and quantity. Label this point 'Efficient equilibrium'. Carefully follow the instructions above, and only draw the required objects. Benefit or cost (dollars per tree) Quantity (wood) 55 9

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Consider the market illustrated in the figure to the right for wood from a forest. Suppose the trees are a
common resource. Supply curve S, represents the private cost of production and demand curve D₁
represents the private benefit from consumption. Show how the private market overuses common
resources.
1.) Use the line drawing tool to first draw either a new supply (S₂) or demand (D₂) curve showing the true
cost of cutting trees. Properly label this line.
2.) Use the point drawing tool to indicate the actual price and quantity the private market. Label this point
'Actual equilibrium'.
3.) Use the point drawing tool to indicate the efficient equilibrium price and quantity. Label this point
'Efficient equilibrium'.
Carefully follow the instructions above, and only draw the required objects.
Benefit or cost (dollars per tree)
X
Quantity (wood)
S₁
D₁
Transcribed Image Text:Consider the market illustrated in the figure to the right for wood from a forest. Suppose the trees are a common resource. Supply curve S, represents the private cost of production and demand curve D₁ represents the private benefit from consumption. Show how the private market overuses common resources. 1.) Use the line drawing tool to first draw either a new supply (S₂) or demand (D₂) curve showing the true cost of cutting trees. Properly label this line. 2.) Use the point drawing tool to indicate the actual price and quantity the private market. Label this point 'Actual equilibrium'. 3.) Use the point drawing tool to indicate the efficient equilibrium price and quantity. Label this point 'Efficient equilibrium'. Carefully follow the instructions above, and only draw the required objects. Benefit or cost (dollars per tree) X Quantity (wood) S₁ D₁
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