The production of steel causes air pollution. Assume that the damage done by this pollution can be quantified as $75 per ton of steel produced. The figure below shows the marginal private benefit and the marginal private cost of steel. MGdal Price ($) 6001 DWL 550 - MC,ocial 500 - DWL MC 'pvt 450- 400- 350 - 300- 250 - 200 150- Bov=MB pvt so 100 - 50 - 10 20 30 40 50 60 70 80 90 100 110 120 130 140 Tons of steel (millions) reset a. This is a negative production externality b. Draw the marginal social cost of steel on the graph. Use the tool provided (MCsocial) and plot only the two endpoints across the range of output 0 - 120. c. Without any intervention into the market, how many million tons of steel are sold? 90 d. What is the efficient (or socially optimal) quantity of steel? 80 million tons. e. Draw the deadweight loss that arises if the government does not intervene in this market. Use the tool provided (DWL) to draw the deadweight loss. The value of the deadweight loss is $ million. f. A Pigouvian tax of $ 75 per ton would eliminate the deadweight loss.

The production of steel causes air pollution. Assume that the damage done by this pollution can be quantified as $75 per ton of steel produced. The figure below shows the marginal private benefit and the marginal private cost of steel. MGdal Price ($) 6001 DWL 550 - MC,ocial 500 - DWL MC 'pvt 450- 400- 350 - 300- 250 - 200 150- Bov=MB pvt so 100 - 50 - 10 20 30 40 50 60 70 80 90 100 110 120 130 140 Tons of steel (millions) reset a. This is a negative production externality b. Draw the marginal social cost of steel on the graph. Use the tool provided (MCsocial) and plot only the two endpoints across the range of output 0 - 120. c. Without any intervention into the market, how many million tons of steel are sold? 90 d. What is the efficient (or socially optimal) quantity of steel? 80 million tons. e. Draw the deadweight loss that arises if the government does not intervene in this market. Use the tool provided (DWL) to draw the deadweight loss. The value of the deadweight loss is $ million. f. A Pigouvian tax of $ 75 per ton would eliminate the deadweight loss.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter13: Positive Externalities And Public Goods

Section: Chapter Questions

Problem 24P: Assume that the marginal private costs of a film producing fuel-efficient can; is greater than the...

See similar textbooks

Similar questions

Assume that the marginal private costs of a film producing fuel-efficient can; is greater than the marginal social costs. Assume that the marginal private benefits of a firm producing fuel efficient cars are the same as the marginal social benefits. Discuss one wags.r that the government cans ï¬‚y to increase production and sales of fuel efficient cars to the socially desirable amount. Hint: the government is flying to affect production through costs, net benefits.
Is zero pollution possible under a marketable permits system? Why or why not?
What is a pollution charge and what incentive does it provide for a firm to take external costs into account?
What is the difference between private costs and social costs?
In a market without environmental regulations, will the supply curve for a film account for private costs, external costs, both, or neither? Explain.
Identify the following situations as an example of a negative or a positive externality: You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds. Your neighbor paints his house a hideous color. Investments in private education raise your countrys standard of living. Trash dumped upstream flows downstream right past your home. Your roommate is a smoker, but you are a nonsmoker.
What is a marketable permit and what incentive does it provide for a firm to account for external costs?
Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Fe and Qe. On the graph, shade in the deadweight loss at the market output.
How can high-income countries benefit from covering much of the cost of reducing pollution created by low-income countries?
What are better-defined property rights and what incentive do they provide to account for external costs?
Suppose you want to put a dollar value on the external costs of carbon emissions from a power plant. What information or data would you obtain to measure the external [not social] cost?
Refer to Table 12.2. The externality created by the refrigerator production was 100. However, once we accounted for both the private and additional external costs, the market price increased by only 50. If the external costs were 100 why did the price only increase by 50 when we accounted for all costs?