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

See similar textbooks

Related questions

Q: From a social welfare perspective, what circumstances may cause too many frims to enter a market?…

A: It is the socialist market structure where the resources used in the process of production are owned…

Q: An externality arises when a firm or person engages in an activity that affects the wellbeing of a…

A: * ANSWER :-

Q: In this figure, which point represents social equilibrium? A) C B A B

A: The unforeseen repercussions or side effects of economic activity that have an impact on parties not…

Q: 5 ranchers use a grassland to feed their cows. The ranchers must choose how many cows to raise. The…

A: The Nash equilibrium refers to the situation where firms independently choose their production…

Q: The market equilibrium quantity is units of electricity, but the socially optimal quantity of…

A: Market Equilibrium is where the demand curve intersects the supply curve. Socially optimal quantity…

Q: Price ($/dose) 1101 Suppose that a vaccine is developed for a highly contagious strain of flu. he…

A: The consumer has the desire to buy a product determines the demand of the commodity. If the demand…

Q: Current research on kidney transplants (see…

A: A market is in equilibrium, when quantity demanded equals quantity supplied.

Q: Suppose the supply curve of portable radio rentals in Golden Gate Park is given by: P= 5 +0.1Q,…

A: The supply equation of portable radio is P=5+0.1Q .... (1)The demand equation for portable radio…

Q: Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly…

A: Externalities: When a firm produces a good sometimes it creates cost or benefits for other firms. If…

Q: Refer to Table 13-9. What is variable cost when output equals 30 units? Select one: O a. $90.00 O b.…

A: Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: The graph below illustrates the market for natural gas. Currently, the market equilibrium output and…

A: Externalities, in the realm of economics, are unintended consequences of economic activities that…

Q: 1. A company decides to eliminate the pollution it was causing. The result was a "socially efficient…

A: Factors of production are the components used for the process of manufacturing the goods and…

Q: D B Price ceiling D Q Q2 Q1 The figure above shows a market for gasoline with a price ceiling equal…

A: Demand is the willingness and ability of consumers for consuming and buying goods and services at…

Q: Pu P3 P₂ P₁ Qi Q₂ Q Q4 MR MSC тре D a. What price and quantity will the firm in the diagram above…

A: In economics, MSC, MPC, and MR are important concepts that relate to the study of production, costs,…

Q: A medical company develops a treatment for spinal cord injuries and allows patient to walk again. In…

A: Medical company develops a treatment for spinal injuries. This development have postive impact on…

Q: A local school administrator observes an increase in the number of flu cases in the public schools…

A: Externality refers to the external cost and benefits that are imposed on third parties without their…

Q: If the equilibrium quantity of a good is also the socially optimal quantity, then: Multiple Choice O…

A: Equilibrium occurs when demand and supply forces are equal. Equilibrium leads to efficient outcomes…

Q: Discuss how rationing impure public goods would limit consumption of the following (USE PROPER…

A: Rationing: This can be explained as a significant constraint which the authorities uses to restrict…

Q: Explain why there are no markets for public goods briefly.

A: Public goods are those goods that are provided by the government and those goods are non-excludable…

Q: What exactly is a Pigovian tax? Give some instances of how the Pigovian tax can be used to tackle…

A: Pigouvian tax: A tax imposed on economic activities generating negative externalities.Negative…

Q: 2 ranchers use a grassland to feed their cows. The ranchers must choose how many cows to raise. The…

A: To find the quantity of cows that each rancher raises in a Nash Equilibrium, we need to analyze…

Q: In competitive markets, we know that: P= MWTP P= MC MC= AC P= Min AC Which result(s) implies that…

A: A market in which there is a high level of competition is one with a competitive market structure.…

Question

3. The effect of negative externalities on the optimal quantity of consumption
Consider the market for pharmaceuticals. Suppose that a pharmaceutical factory dumps toxic waste into a nearby river, creating a negative externality
for those living downstream from the factory. Producing additional pharmaceuticals imposes a constant per-unit external cost of $240. The following
graph 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)
800
720
640
560
480
400
320
240
160
80
0
0
1
☐
0
O
¶
2
3
5
QUANTITY (Units of pharmaceuticals)
4
■ Supply
(Private Cost)
6
Demand
(Private Value)
7
Social Cost
?

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

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Define externality

VIEW

Step 2: calculate Social cost and construct Graph

VIEW

Step 3: Determine Fill in the blanks

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

1. During the winter break, Sam decides to go for a skiing vacation in Aspen instead of taking piano lessons. The opportunity cost of the skiing vacation is the:cost of accommodation and food in Aspen.value of piano lessons.cost of buying a piano.amount paid to the skiing instructor. 2. Which of the following is an example of a negative externality?Smith reducing the consumption of imported wine following an increase in the price of imported winePhoebe refusing to contribute to the building of a children’s park in her neighborhoodChristina accepting a payment in cash rather than in check for her laundry servicesTom playing music loudly in his room, disturbing his roommate who has an exam the next day3. A perfectly competitive firm sells 10 units of Good X at a price of $2 per unit. It incurs a fixed cost of $5 and a variable cost of $40 to produce the good. Which of the following is true?The firm should operate in the short run but shut down in the long run.The marginal cost…
Parks confer many external benefits on society: open space, trees that reduce pollution, and so on. Therefore, the market equilibrium quantity of parks is not equal to the socially optimal quantity. The following graph shows the demand for parks (their private value), the supply of parks (the private cost of producing them), and the social value of parks, including both the private value and external benefits. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity.
3. Now reconsider the issue of soybeans from the perspective of Chinese consumers. Assume you are a Chinese consumer who drinks soymilk each day. Demonstrate using a graph how your consumption of soymilk differs from the socially optimal level. Is the price you pay for soymilk in current market conditions the correct amount, too high, or too low? Why? Ensure that you label your graph correctly (all curves, axes, price and quantities labeled). Show the deadweight loss of soymilk consumption, and what price should be charged for soymilk to move the amount of soymilk you drink to the optimal level.
answer to this q?
The production of fabric generates toxic effluents related to the dyes used. This is typically disposed of with wastewater, which generates pollution. If the government does not intervene, the market for fabric has an equilibrium price of $250 per roll and an equilibrium quantity of 10,000 rolls. a.How would the socially optimal quantity of fabric compare to the free market equilibrium quantity of 10,000 rolls? Why? b. Using a supply and demand graph show the effect on social welfare of allowing the market for fabric to operate without government intervention. Label all the curves and relevant points on your graph. c. Would a government subsidy or tax help the market achieve the social optimum? Explain. Show the necessary subsidy/tax on your graph. d. Explain how this intervention helps achieve the social optimum and what information would be necessary to implement it.
If a paper manufacturer does not bear the entire cost of the dioxin it emits, it will Select one: emit a lower level of dioxin than is socially efficient. b. emit an acceptable level of dioxin. emit a higher level of dioxin than is socially efficient. a. C. O d. not emit any dioxin in an attempt to avoid paying the entire cost.
Marginal Social Cost: P = 1 + 2 Q Graph the market. Be sure to fully and clearly label the graph, including: the Demand (D), the Marginal Private Cost (MPC), the Marginal Social Cost (MSC), the Private Equilibrium Quantity (Qpe), Private Equilibrium Price as (Ppe), the Socially Optimal Price (Ps), the Socially Optimal Quantity (Qs), and the Deadweight Loss (DWL).
$100 Price 80 60 40 20 0 100 200 300 400 500 600. Quantity of Health Care Refer to the graph for the health care market. A health insurance plan that pays four-fifths of the cost of a consumer's health care leads to Multiple Choice S O overconsumption of health care by 300 units. overconsumption of health care by 600 units. D