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When farmers fertilize their fields, the nitrogen from the fertilizer can get washed into streams which then feed into larger rivers. This "runoff" can cause damage to ecosystems and reduce the number of fish that can be caught by fishermen farther downstream. Draw a graph of the market for fertilizer where supply and demand are characterized by the equations: P=3+0.5Qs and P=24-Qd. The marginal external cost of fertilizer is a $0.50*Q reduction in the value of the fish they catch. This means, for example, if 3 units of fertilizer are used then the last unit of fertilizer causes fishermen to suffer a $1.50 loss...however, they are worse off by $0.50 from the first unit and $1.00 from the second

When farmers fertilize their fields, the nitrogen from the fertilizer can get washed into streams which then feed into larger rivers. This "runoff" can cause damage to ecosystems and reduce the number of fish that can be caught by fishermen farther downstream. Draw a graph of the market for fertilizer where supply and demand are characterized by the equations: P=3+0.5Qs and P=24-Qd. The marginal external cost of fertilizer is a $0.50*Q reduction in the value of the fish they catch. This means, for example, if 3 units of fertilizer are used then the last unit of fertilizer causes fishermen to suffer a $1.50 loss...however, they are worse off by $0.50 from the first unit and $1.00 from the second

Exploring Economics
Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter8: Market Failure
Section: Chapter Questions
Problem 2P: Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and...
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When farmers fertilize their fields, the nitrogen from the fertilizer can get washed into streams which then feed into larger rivers. This "runoff" can cause damage to ecosystems and reduce the number of fish that can be caught by fishermen farther downstream. Draw a graph of the market for fertilizer where supply and demand are characterized by the equations: P=3+0.5Qs and P=24-Qd. The marginal external cost of fertilizer is a $0.50*Q reduction in the value of the fish they catch. This means, for example, if 3 units of fertilizer are used then the last unit of fertilizer causes fishermen to suffer a $1.50 loss...however, they are worse off by $0.50 from the first unit and $1.00 from the second unit as well. Label the curves on the graph, indicating if they're S or D, private or social. Draw and label a new curve incorporating the externality. What is the equation for your new curve? On the graph, label the free market equilibrium price and quantity versus the socially optimal equilibrium price and quantity. Shade in the area represented by deadweight loss. 3. Market price: Socially optimal price: Market quantity: Socially optimal quantity: What is the amount of the optimal tax?
Transcribed Image Text:When farmers fertilize their fields, the nitrogen from the fertilizer can get washed into streams which then feed into larger rivers. This "runoff" can cause damage to ecosystems and reduce the number of fish that can be caught by fishermen farther downstream. Draw a graph of the market for fertilizer where supply and demand are characterized by the equations: P=3+0.5Qs and P=24-Qd. The marginal external cost of fertilizer is a $0.50*Q reduction in the value of the fish they catch. This means, for example, if 3 units of fertilizer are used then the last unit of fertilizer causes fishermen to suffer a $1.50 loss...however, they are worse off by $0.50 from the first unit and $1.00 from the second unit as well. Label the curves on the graph, indicating if they're S or D, private or social. Draw and label a new curve incorporating the externality. What is the equation for your new curve? On the graph, label the free market equilibrium price and quantity versus the socially optimal equilibrium price and quantity. Shade in the area represented by deadweight loss. 3. Market price: Socially optimal price: Market quantity: Socially optimal quantity: What is the amount of the optimal tax?
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