3 The Effect Of Negative Externalities On The Optimal Quantityof Consumption Consider The Market For Steel Suppose Tha 1 (27.5 KiB) Viewed 67 times
3 The Effect Of Negative Externalities On The Optimal Quantityof Consumption Consider The Market For Steel Suppose Tha 2 (20.9 KiB) Viewed 67 times
3 The Effect Of Negative Externalities On The Optimal Quantityof Consumption Consider The Market For Steel Suppose Tha 3 (21.46 KiB) Viewed 67 times
3. The effect of negative externalities on the optimal quantityof consumption Consider the market for steel. Suppose that a steel manufacturing plant dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the plant. Producing an additional ton of steel imposes a constant external cost of $70 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $70 per ton. 200 150 Social Cost 160 140 120 100 80 Dollars per ton of steel) O O O Supply (Private Cost) A
Homework (Ch 10) 200 100 100 140 + 120 100 80 00 PRICE (Dollars per ton of steel) 8 20 0 t O O D O 2 QUANTITY (Tons S steel) O 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost 11:10 AM
8 PRICE (Do 00 DO 40 20 0 C ● Demand (Private Value) M 0 1 The market equilibrium quantity is tons of steel, but the socially optimal quantity of steel production is To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a of steel. Grade It Now QUANTITY (Tons of steel) tons. of S Save & Continue per ton Continue without saving
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