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 $385 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 $385 per ton. PRICE (Dollars per ton of paper) 1100 990 880 770 660 550 440 330 220 110 0 0 O ☐ 1 O П O 2 0 3 4 5 QUANTITY (Tons of paper) □ The market equilibrium quantity is C 0 Supply (MPC) 6 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 tons. of $ 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 $385 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 $385 per ton. PRICE (Dollars per ton of paper) 1100 990 880 770 660 550 440 330 220 110 0 0 O ☐ 1 O П O 2 0 3 4 5 QUANTITY (Tons of paper) □ The market equilibrium quantity is C 0 Supply (MPC) 6 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 tons. of $ per ton

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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