3. The effect of negative externalities on the optimal quantityof consumptionConsider the market for electric cars. Suppose that a electric car manufacturing facility dumps sludge into a nearby river, creating a negativeexternality for those living downstream from the facility. Producing additional electric cars imposes a constant per-unit external cost of $75. Thefollowing graph shows the demand (private value) curve and the supply (private cost) curve for electric cars.Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $75 per unit.PRICE (Dollars per unit of electric cars)500450400350300250200150100500OOU-□O□O5QUANTITY (Units of electric cars)0 Supply6(Private Cost)Demand(Private Value).7Social Cost PRICE (Dollars per unit of electric cars)500450400350300250200150100500H0O□10■The market equilibrium quantity isO35QUANTITY (Units of electric cars)☐ Supply(Private Cost)6Demand(Private Value)Social Costunits of electric cars, but the socially optimal quantity of electric car production isTo create an incentive for the firm to produce the socially optimal quantity of electric cars, the government could impose aper unit of electric cars.units.of 1

This can be defined as a concept that shows the cost incurred in the production process of a…

Consider the market for electric cars. Suppose that a electric car manufacturing facility dumps sludge into a nearby river, creating a negative externality for those living downstream from the facility. Producing additional electric cars imposes a constant per-unit external cost of $75. The following graph shows the demand (private value) curve and the supply (private cost) curve for electric cars. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $75 per unit.

Consider the market for electric cars. Suppose that a electric car manufacturing facility dumps sludge into a nearby river, creating a negative externality for those living downstream from the facility. Producing additional electric cars imposes a constant per-unit external cost of $75. The following graph shows the demand (private value) curve and the supply (private cost) curve for electric cars. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $75 per unit.

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter17: Externalities And The Environment

Section: Chapter Questions

Problem 10PAE

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