PRICE (Dollars per ton of paper)7006305604904203502802101407000O☐1♫O2045QUANTITY (Tons of paper)3OThe market equilibrium quantity is♫ Supply(Private Cost)6Demand(Private Value)7Social Costtons of paper, but the socially optimal quantity of paper production isTo create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose aof paper.tons.of $per ton 3. The effect of negative externalities on the optimal quantity of consumptionConsider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those livingdownstream from the factory. Producing an additional ton of paper imposes a constant external cost of $105 per ton. The following graph shows thedemand (private value) curve and the supply (private cost) curve for paper.Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $105 per ton.PRICE (Dollars per ton of paper)70063056049042035028021014070001OO2☐■3O45QUANTITY (Tons of paper)☐6Supply(Private Cost)Demand(Private Value)7Social Cost?

Market equilibrium refers to a state in which the quantity of a product or service demanded by…

The market equilibrium quantity is ▼ tons of paper, but the socially optimal quantity of paper production is To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of paper. ▼ tons. of $ per tor

The market equilibrium quantity is ▼ tons of paper, but the socially optimal quantity of paper production is To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of paper. ▼ tons. of $ per tor

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

PRICE (Dollars per ton of paper)
700
630
560
490
420
350
280
210
140
70
0
0
O
☐
1
♫
O
2
0
4
5
QUANTITY (Tons of paper)
3
O
The market equilibrium quantity is
♫ Supply
(Private Cost)
6
Demand
(Private Value)
7
Social Cost
tons of paper, but the socially optimal quantity of paper production is
To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a
of paper.
tons.
of $
per ton

3. The effect of negative externalities on the optimal quantity of consumption
Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living
downstream from the factory. Producing an additional ton of paper imposes a constant external cost of $105 per ton. The following graph shows the
demand (private value) curve and the supply (private cost) curve for paper.
Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $105 per ton.
PRICE (Dollars per ton of paper)
700
630
560
490
420
350
280
210
140
70
0
0
1
O
O
2
☐
■
3
O
4
5
QUANTITY (Tons of paper)
☐
6
Supply
(Private Cost)
Demand
(Private Value)
7
Social Cost
?

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