Answered: Consider the market illustrated in the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider the market illustrated in the figure to the right. Supply curve Upper S 1 represents the private cost of production and demand curve Upper D 1 represents the private benefit from consumption. Suppose production of this good creates a negative externality... Show how the externality affects the market.

1.) Use the line drawing tool to draw either a new supply (Upper S 2) or demand (Upper D 2) curve incorporating the negative externality in production

Properly label this line.

2.) Use the point drawing tool to indicate the market equilibrium price and quantity. Label this point 'Market 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.

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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