MACROECONOMICS
10th Edition
ISBN: 9781319106072
Author: Mankiw
Publisher: MAC HIGHER
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Question
Chapter 15, Problem 7PA
(a)
To determine
The effect of changes in natural rate of interest
(b)
To determine
The effect of shock to
(c)
To determine
The difficulties faced by the central bank if the natural rate of interest
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Consider the market for electricity. Suppose that a power plant dumps byproducts into a nearby river, creating a negative externality for those living
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Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $490 per unit.
PRICE (Dollars per unit of electricity)
1400
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420
280
140
°
D
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2
3
D
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5
6
7
QUANTITY (Units of electricity)
Social Cost
The market equilibrium quantity is
units of electricity, but the socially optimal quantity of electricity production is
units.
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unit of electricity.
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