3. The effect of negative externalities on the optimal quantity of consumptionConsider the market for pharmaceuticals. Suppose that a pharmaceutical factory dumps toxic waste into a nearby river, creating a negative externalityfor those living downstream from the factory. Producing additional pharmaceuticals imposes a constant per-unit external cost of $240. The followinggraph shows the demand (private value) curve and the supply (private cost) curve for pharmaceuticals.Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $240 per unit.PRICE (Dollars per unit of pharmaceuticals)80072064056048040032024016080001☐0O¶235QUANTITY (Units of pharmaceuticals)4■ Supply(Private Cost)6Demand(Private Value)7Social Cost? The market equilibrium quantity isunits of pharmaceuticals, but the socially optimal quantity of pharmaceuticals production isTo create an incentive for the firm to produce the socially optimal quantity of pharmaceuticals, the government could impose a$per unit of pharmaceuticals.units.of

Externality:It is an economic problem when people take benefit from the economic goods. It is…

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

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

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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