Sh 13 Subject - economics 3. The effect of negative externalities on the optimal quantityof consumptionConsider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externalityfor those living downstream from the factory. Producing an additional ton of paper imposes a constant external cost of $70 per ton.The following graph shows the demand (private value) curve and the supply (private cost) curve for paper.Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $70 per ton.PRICE (Dollars per ton of paper)2001801601401201008060402000O01OD2OThe market equilibrium quantity is☐☐34QUANTITY (Tons of paper)O5Supply(Private Cost)O Demand(Private Value)67Social Costtons of paper, but the socially optimal quantity of paper production isTo create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose aper ton of paper.▼ tons.▼ of

Externalities refer to the costs or benefits of an economic transaction incurred on a third party…

The market equilibrium quantity is 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 per ton of paper. tons. of

The market equilibrium quantity is 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 per ton of paper. tons. of

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 2PA

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Question

Sh 13

Subject - economics

3. The effect of negative externalities on the optimal quantityof 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 external cost of $70 per ton.
The following graph shows the demand (private value) curve and the supply (private cost) curve for paper.
Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $70 per ton.
PRICE (Dollars per ton of paper)
200
180
160
140
120
100
80
60
40
20
0
0
O
0
1
O
D
2
O
The market equilibrium quantity is
☐
☐
3
4
QUANTITY (Tons of paper)
O
5
Supply
(Private Cost)
O Demand
(Private Value)
6
7
Social Cost
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
per ton of paper.
▼ tons.
▼ of

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