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 $385 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 $385 per ton. (? 1100 990 Social Cost 880 770 Supply (Private Cost) 660 550 440 330 220 Demand 110 (Private Value) 1 QUANTITY (Tons of steel) PRICE (Dollars per ton of steel)

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 $385 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 $385 per ton. (? 1100 990 Social Cost 880 770 Supply (Private Cost) 660 550 440 330 220 Demand 110 (Private Value) 1 QUANTITY (Tons of steel) PRICE (Dollars per ton of steel)

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter17: Externalities And The Environment

Section: Chapter Questions

Problem 2.3P: (Negative Externalities) Suppose you wish to reduce a negative externality by imposing a tax on the...

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