ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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1. The graph below shows the unregulated market for a pesticide. When factories produce
pesticide, they create waste and dump it into a lake. Use the graph below to answer the
following questions
Price (dollars per ton)
150
125
100
75
50
25
25
S
50
30 40
Quantity (tons per week)
0 10
20
For this market, suppose the following events occur independently. Illustrate the effect of each
event in a separate graph showing the appropriate shift in supply and/or demand for coffee and
indicate the effects on the equilibrium price and quantity. Be sure to explain your answer and
label your graphs to avoid any misinterpretations.
a. The external costs of pollution is $25 at every point of production. Draw the marginal
social cost curve on the graph above.
b. What is the quantity of pesticide produced if no one owns the lake?
c. What is the efficient quantity of pesticide?
d. Without government involvement, why wouldn't the efficient quantity be produced?
e.
Use Coase Theorem to explain how this market can achieve the efficient quantity.
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Transcribed Image Text:1. The graph below shows the unregulated market for a pesticide. When factories produce pesticide, they create waste and dump it into a lake. Use the graph below to answer the following questions Price (dollars per ton) 150 125 100 75 50 25 25 S 50 30 40 Quantity (tons per week) 0 10 20 For this market, suppose the following events occur independently. Illustrate the effect of each event in a separate graph showing the appropriate shift in supply and/or demand for coffee and indicate the effects on the equilibrium price and quantity. Be sure to explain your answer and label your graphs to avoid any misinterpretations. a. The external costs of pollution is $25 at every point of production. Draw the marginal social cost curve on the graph above. b. What is the quantity of pesticide produced if no one owns the lake? c. What is the efficient quantity of pesticide? d. Without government involvement, why wouldn't the efficient quantity be produced? e. Use Coase Theorem to explain how this market can achieve the efficient quantity.
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