3. The effect of negative externalities on the optimal quantityof consumption Consider the market for paper. Suppose tha

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3 The Effect Of Negative Externalities On The Optimal Quantityof Consumption Consider The Market For Paper Suppose Tha 1 (116.22 KiB) Viewed 11 times

3. The effect of negative externalities on the optimal quantityof consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant external cost of $525 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $525 per ton. PRICE (Dollars per ton of paper) 1500 1350 1200 1050 900 750 600 450 300 150 0 0 1 П 2 ☐ 3 ☐ The market equilibrium quantity is 4 ■□ 5 QUANTITY (Tons of paper) 0 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost (? tons of paper, but the socially optimal quantity of paper production is To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of paper. tons. per ton