3. The effect of negative externalities on the optimal quantity of consumption 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 marginal external cost (MEC) of $525 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for paper. Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $525 per ton. (?) PRICE (Dollars per ton of paper) 1500 1350 1200 1050 900 750 600 450 300 150 0 0 O 1 O 2 O 0 3 4 5 QUANTITY (Tons of paper) The market equilibrium quantity is O 10 6 Supply (MPC) Demand (MPB) 7 MSC tons of paper, but the socially optimal quantity of paper production is To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of paper. tons. per ton
3. The effect of negative externalities on the optimal quantity of consumption 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 marginal external cost (MEC) of $525 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for paper. Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $525 per ton. (?) PRICE (Dollars per ton of paper) 1500 1350 1200 1050 900 750 600 450 300 150 0 0 O 1 O 2 O 0 3 4 5 QUANTITY (Tons of paper) The market equilibrium quantity is O 10 6 Supply (MPC) Demand (MPB) 7 MSC tons of paper, but the socially optimal quantity of paper production is To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of paper. tons. per ton
Chapter17: Externalities And The Environment
Section: Chapter Questions
Problem 2.3P: (Negative Externalities) Suppose you wish to reduce a negative externality by imposing a tax on the...
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![3. The effect of negative externalities on the optimal quantity of consumption
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 marginal external cost (MEC) of $525 per ton. The following
graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for paper.
Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $525 per ton.
PRICE (Dollars per ton of paper)
1500
1350
1200
1050
900
750
600
450
300
150
0
0
X
O
1
2
4
QUANTITY (Tons of paper)
3
5
The market equilibrium quantity is
8
Supply
(MPC)
Demand
(MPB)
7
MSC
(?)
tons of paper, but the socially optimal quantity of paper production is
To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a
of paper.
tons.
of $
per ton](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F220eed70-1154-4fb9-a08e-8184afa41c7e%2F89840d7d-f0a6-4c5b-831c-66770035efd8%2Fbskn5lq_processed.png&w=3840&q=75)
Transcribed Image Text:3. The effect of negative externalities on the optimal quantity of consumption
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 marginal external cost (MEC) of $525 per ton. The following
graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for paper.
Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $525 per ton.
PRICE (Dollars per ton of paper)
1500
1350
1200
1050
900
750
600
450
300
150
0
0
X
O
1
2
4
QUANTITY (Tons of paper)
3
5
The market equilibrium quantity is
8
Supply
(MPC)
Demand
(MPB)
7
MSC
(?)
tons of paper, but the socially optimal quantity of paper production is
To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a
of paper.
tons.
of $
per ton
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