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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Draw a supply-and-demand diagram to explain the effect of a negative externality that occurs as a result of a firm’s production process.

To determine
The effect of negative externality.

Explanation

The effect of negative externality that occurs as a result of a firm’s production process is explained with the help of a diagram, as shown below:

Figure 1 shows the effect of externality.

In Figure 1, the vertical axis measures price and the horizontal axis measures quantity. Here, the equilibrium point is the intersecting point of demand and supply...

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