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.
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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider the market illustrated in the figure to the right. Supply curve Upper S 1 represents the private cost of production and
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.
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