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Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $90 per unit. PRICE (Dollars per unit of electricity) 600 540 480 420 360 300 Supply (Private Cost) 240 180 120 60 0 2 3 QUANTITY (Units of electricity) Demand (Private Value) Social Cost The market equilibrium quantity is 3.5 units of electricity, but the socially optimal quantity of electricity production is_ units. To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose a unit of electricity. of per

Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $90 per unit. PRICE (Dollars per unit of electricity) 600 540 480 420 360 300 Supply (Private Cost) 240 180 120 60 0 2 3 QUANTITY (Units of electricity) Demand (Private Value) Social Cost The market equilibrium quantity is 3.5 units of electricity, but the socially optimal quantity of electricity production is_ units. To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose a unit of electricity. of per

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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3. The effect of negative externalities on the optimal quantity of 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 $90. 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 $90 per unit. PRICE (Dollars per unit of electricity) 600 540 480 420 360 Supply (Private Cost) 300 240 180 120 60 0 0 2 3 4 Demand (Private Value) 5 6 7 QUANTITY (Units of electricity) Social Cost ? The market equilibrium quantity is 3.5 units of electricity, but the socially optimal quantity of electricity production is units. To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose a unit of electricity. of $ per
Transcribed Image Text:3. The effect of negative externalities on the optimal quantity of 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 $90. 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 $90 per unit. PRICE (Dollars per unit of electricity) 600 540 480 420 360 Supply (Private Cost) 300 240 180 120 60 0 0 2 3 4 Demand (Private Value) 5 6 7 QUANTITY (Units of electricity) Social Cost ? The market equilibrium quantity is 3.5 units of electricity, but the socially optimal quantity of electricity production is units. To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose a unit of electricity. of $ per
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