Consider the market for bolts. Suppose that a hardware factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of bolts imposes a constant extenal cost of $150 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for bolts. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $150 per ton. 500 450 Social Cost 400 350 300 Supply (Private Cost) 250 200 Demand 150 (Private Value) 100 50 1 QUANTITY (Tons of bolts) The market equilibrium quantity is tons of bolts, but the socially optimal quantity of bolt production is tons. PRICE(Dollars perton of bolts)
Consider the market for bolts. Suppose that a hardware factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of bolts imposes a constant extenal cost of $150 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for bolts. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $150 per ton. 500 450 Social Cost 400 350 300 Supply (Private Cost) 250 200 Demand 150 (Private Value) 100 50 1 QUANTITY (Tons of bolts) The market equilibrium quantity is tons of bolts, but the socially optimal quantity of bolt production is tons. PRICE(Dollars perton of bolts)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section: Chapter Questions
Problem 1PA
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i am having trouble with this question microeconmics chapter 5 question 5
Transcribed Image Text:Consider the market for bolts. Suppose that a hardware factory dumps toxic waste into a nearby river, creating a negative externality for those living
downstream from the factory. Producing an additional ton of bolts imposes a constant extenal cost of $150 per ton. The following graph shows the
demand (private value) curve and the supply (private cost) curve for bolts.
Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $150 per ton.
500
450
Social Cost
400
350
300
Supply
(Private Cost)
250
200
Demand
150
(Private Value)
100
50
1
QUANTITY (Tons of bolts)
The market equilibrium quantity is
tons of bolts, but the socially optimal quantity of bolt production is
tons.
PRICE(Dollars perton of bolts)
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