3. The effect of negative externalities on the optimal quantity of consumptionConsider 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 $70 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 $70 per ton. Social Cost01234567200180160140120100806040200PRICE (Dollars per ton of paper)QUANTITY (Tons of paper)Demand(Private Value)Supply(Private Cost) The market equilibrium quantity is ---- tons of paper, but the socially optimal quantity of paper production is ---- tons. To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a----- of per ton of paper. (Please see the screenshot) 3. The effect of negative externalities on the optimal quantityof consumptionConsider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those livingdownstream from the factory. Producing an additional ton of paper imposes a constant external cost of $70 per ton. The following graph shows thedemand (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 $70 per ton.200180Social Cost160140Supply(Private Cost)120100806040Demand20(Private Value)1347QUANTITY (Tons of paper)The market equilibrium quantity istons of paper, but the socially optimal quantity of paper production istons.To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose aof $per tonof paper.PRICE (Dollars per ton of paper)

Externalities refer to the costs or benefits of an economic transaction incurred on a third party…

Answered: Consider the market for paper. Suppose…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 2PA

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3. The effect of negative externalities on the optimal quantity of 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 $70 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 $70 per ton.

Social Cost01234567200180160140120100806040200PRICE (Dollars per ton of paper)QUANTITY (Tons of paper)Demand(Private Value)Supply(Private Cost)

The market equilibrium quantity is ---- tons of paper, but the socially optimal quantity of paper production is ---- tons.

To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a----- of

per ton of paper. (Please see the screenshot)

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 $70 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 $70 per ton.
200
180
Social Cost
160
140
Supply
(Private Cost)
120
100
80
60
40
Demand
20
(Private Value)
1
3
4
7
QUANTITY (Tons of paper)
The market equilibrium quantity is
tons of paper, but the socially optimal quantity of paper production is
tons.
To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a
of $
per ton
of paper.
PRICE (Dollars per ton of paper)

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