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 $105 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 $105 per ton. 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.
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 $105 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 $105 per ton. 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.
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section: Chapter Questions
Problem 3PA
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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 $105 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 $105 per ton.
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.
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