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

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter12: Environmental Protection And Negative Externalities

Section: Chapter Questions

Problem 8SCQ: Four films called Elm, Maple, Oak, and (Shelly, produce wooden chairs. However, they also produce a...

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Question

PRICE (Dollars per unit of electricity)
2000
1800
1600
1400
1200
1000
800
600
400
200
0
1
O
4
5
QUANTITY (Units of electricity)
3
6
Supply
(Private Cost)
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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3. The effect of negative externalities on the optimal quantityof 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 $385 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 $385 per ton. 1100 990 Social Cost 880 770 Supply (Private Cost) 660 550 440 330 220 Demand 110 (Private Value) 1 2 14 6. 7 QUANTITY (Tons of steel). PRICE (Dollars per ton of steel)
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An externality occurs in a market when Oa third party is impacted by a market activity Oexternal factors cause a market's price to rise Othe government regulates a market Onatural disasters negatively impact a market
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Externalities Quantity 0 5 10 15 20 25 30 Private Marginal Cost (PMC) 25 35 40 50 120 External Cost 30 70 75 100 Social Marginal Cost (SMC) 90 85 105 140 170 Page 1 e