2. A frequently overlooked source of pollution in agricultural industries is "odor pollution." Some animals, such as pigs, do not care as much about hygiene as humans and emit an unpleasant odor as a result. For this reason, pig farming can cause a negative externality for those who live near a pig farm. Consider the competitive market for bacon given below. The social marginal benefit of producing a pound of bacon is the private marginal benefit, given by the demand curve. The private marginal cost of producing a pound of bacon is the supply curve. Price Supply = PMC $10 $9 $8 $7 $6 $5 $4 $3 Demand = PMB = SMB $2 $1 4000 s000 12.000 16.000 20,000 24.000 20.00 2.000 36,000 40,000 Pounds of Bacon A. Each pound of bacon produced leads to a $2 negative externality for those who live near the pig farm. Draw the social marginal cost curve. B. What quantity of bacon will the market produce? What is the socially optimal quantity? c. What tax (type of tax and tax rate) should be imposed to move production to the socially optimal quantity? Explain briefly why this tax will lead to the socially optimal quantity being produced.

2. A frequently overlooked source of pollution in agricultural industries is "odor pollution." Some animals, such as pigs, do not care as much about hygiene as humans and emit an unpleasant odor as a result. For this reason, pig farming can cause a negative externality for those who live near a pig farm. Consider the competitive market for bacon given below. The social marginal benefit of producing a pound of bacon is the private marginal benefit, given by the demand curve. The private marginal cost of producing a pound of bacon is the supply curve. Price Supply = PMC $10 $9 $8 $7 $6 $5 $4 $3 Demand = PMB = SMB $2 $1 4000 s000 12.000 16.000 20,000 24.000 20.00 2.000 36,000 40,000 Pounds of Bacon A. Each pound of bacon produced leads to a $2 negative externality for those who live near the pig farm. Draw the social marginal cost curve. B. What quantity of bacon will the market produce? What is the socially optimal quantity? c. What tax (type of tax and tax rate) should be imposed to move production to the socially optimal quantity? Explain briefly why this tax will lead to the socially optimal quantity being produced.

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter11: Public Goods And Common Resources

Section: Chapter Questions

Problem 2PA

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