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

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Please provide an explanation so I can do it my own. Thanks!

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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