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 steel. of $ per ton
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 steel. of $ per ton
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:3. The effect of negative externalities on the optimal quantity of consumption
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 $30 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 $30 per ton.
PRICE (Dollars per ton of steel)
200
180
160
140
120
100
80
60
40
20
0
0
O
▬▬
1
O
2
☐
O
0
3
4
5
QUANTITY (Tons of steel)
☐
6
Supply
(Private Cost)
Demand
(Private Value)
7
Social Cost
(?)
Transcribed Image Text: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 steel.
of $
per ton
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