Only typed answer 3. The effect of negative externalities on the optimal quantityof consumptionConsider the market for electricity. Suppose that a power plant dumps byproducts into a nearby river, creating a negative externality for those livingdownstream from the plant. Producing additional electricity imposes a constant per-unit external cost of $420. The following graph shows the demand(private value) curve and the supply (private cost) curve for electricity.Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $420 per unit.PRICE (Dollars per unit of electricity)1200108096084072060048036024012000■1■O03☐☐O245QUANTITY (Units of electricity)■ Supply(Private Cost)6Demand(Private Value)7Social Cost? The market equilibrium quantity is units of electricity, but the socially optimal quantity of electricity production isTo create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose aunit of electricity.units.of $per

The market equilibrium quantity is units of electricity, but the socially optimal quantity of electricity production is To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose a unit of electricity. units. per

The market equilibrium quantity is units of electricity, but the socially optimal quantity of electricity production is To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose a unit of electricity. units. per

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

Only typed answer

3. The effect of negative externalities on the optimal quantityof consumption
Consider the market for electricity. Suppose that a power plant dumps byproducts into a nearby river, creating a negative externality for those living
downstream from the plant. Producing additional electricity imposes a constant per-unit external cost of $420. The following graph shows the demand
(private value) curve and the supply (private cost) curve for electricity.
Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $420 per unit.
PRICE (Dollars per unit of electricity)
1200
1080
960
840
720
600
480
360
240
120
0
0
■
1
■
O
0
3
☐
☐
O
2
4
5
QUANTITY (Units of electricity)
■ Supply
(Private Cost)
6
Demand
(Private Value)
7
Social Cost
?

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

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