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 $245 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. D Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $245 per ton. (?) 700 O PRICE (Dollars per ton of steel) 630 560 490 420 350 280 210 140 70 73°F Mostly cloudy. □ C QUANTITY (Tons of steel) Supply (Private Cost) Demand (Private Value) Social Cost i I' C D O900 X 1:15 PM 6/12/2022 A-Z
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 $245 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. D Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $245 per ton. (?) 700 O PRICE (Dollars per ton of steel) 630 560 490 420 350 280 210 140 70 73°F Mostly cloudy. □ C QUANTITY (Tons of steel) Supply (Private Cost) Demand (Private Value) Social Cost i I' C D O900 X 1:15 PM 6/12/2022 A-Z
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter12: Environmental Protection And Negative Externalities
Section: Chapter Questions
Problem 40P: Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in...
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Transcribed Image Text: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 $245 per ton. The following graph
shows the demand (private value) curve and the supply (private cost) curve for steel.
D
Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $245 per ton.
(?)
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PRICE (Dollars per ton of steel)
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The market equilibrium quantity is tons of steel, but the socially optimal quantity of steel production is
To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a
of steel.
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