The market equilibrium quantity istons of steel, but the socially optimal quantity of steel production istons.To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose aof $per tonof steel. Consider the market for steel. Suppose that a steel manufacturing plant dumps toxic waste into a nearby river, creating a negative externality forthose living downstream from the plant. Producing an additional ton of steel imposes a constant external cost of $165 per ton. The following graphshows the demand (private value) curve and the supply (private cost) curve for steel.Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $165 per ton.1100990Social Cost880770Supply(Private Cost)660550440330220Demand110(Private Value)1247QUANTITY (Tons of steel)PRICE (Dollars per ton of steel)

Market Equilibrium quantity occurs when Demand (Private Value) is equal to the Supply (Private…

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

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

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

100%

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

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 $165 per ton. The following graph
shows the demand (private value) curve and the supply (private cost) curve for steel.
Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $165 per ton.
1100
990
Social Cost
880
770
Supply
(Private Cost)
660
550
440
330
220
Demand
110
(Private Value)
1
2
4
7
QUANTITY (Tons of steel)
PRICE (Dollars per ton of steel)

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