The paper industry has the demand and supply curves shown below: Price of paperQuantity demanded Quantity supplied 28040370504606055070 Suppose that this industry results in extreme externalities. What can be said about its optimal output?Draw the supply and demand curves for paper. Does the supply curve reflect the true social costs of producing the product? If not will a supply curve reflecting the true social costs lies above or below the supply curve you have drawn? What is the equilibrium price of paper? From the point of view of reflecting the true social costs, is this price the correct one, or too low or too high?

The negative externalities would result in production of one party negatively affecting the…

Answered: Suppose that this industry results in…

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 42P: Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the...

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The paper industry has the demand and supply curves shown below:

Price of paper	Quantity demanded	Quantity supplied
2	80	40
3	70	50
4	60	60
5	50	70

Suppose that this industry results in extreme externalities. What can be said about its optimal output?
Draw the supply and demand curves for paper. Does the supply curve reflect the true social costs of producing the product? If not will a supply curve reflecting the true social costs lies above or below the supply curve you have drawn?
What is the equilibrium price of paper? From the point of view of reflecting the true social costs, is this price the correct one, or too low or too high?

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