Consider the market illustrated in the figure to the right. Supply curve S₁ represents the private cost of production and demand curve D₁ represents the private benefit from consumption. Suppose production of this good creates a negative externality. Show how the externality affects the market. 1.) Use the line drawing tool to draw either a new supply (S₂) or demand (D₂) curve incorporating the negative externality in production. Properly label this line. 2.) Use the point drawing tool to indicate the market equilibrium price and quantity. Label this point 'Market equilibrium'. 3.) Use the point drawing tool to indicate the efficient equilibrium price and quantity. Label this point 'Efficient equilibrium'. Carefully follow the instructions above, and only draw the required objects. C Price Quantity S₁ D₁
Consider the market illustrated in the figure to the right. Supply curve S₁ represents the private cost of production and demand curve D₁ represents the private benefit from consumption. Suppose production of this good creates a negative externality. Show how the externality affects the market. 1.) Use the line drawing tool to draw either a new supply (S₂) or demand (D₂) curve incorporating the negative externality in production. Properly label this line. 2.) Use the point drawing tool to indicate the market equilibrium price and quantity. Label this point 'Market equilibrium'. 3.) Use the point drawing tool to indicate the efficient equilibrium price and quantity. Label this point 'Efficient equilibrium'. Carefully follow the instructions above, and only draw the required objects. C Price Quantity S₁ D₁
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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Transcribed Image Text:Consider the market illustrated in the figure to the right. Supply curve S₁
represents the private cost of production and demand curve D₁
represents the private benefit from consumption. Suppose production of
this good creates a negative externality. Show how the externality affects
the market.
1.) Use the line drawing tool to draw either a new supply (S₂) or demand
(D₂) curve incorporating the negative externality in production. Properly
label this line.
2.) Use the point drawing tool to indicate the market equilibrium price
and quantity. Label this point 'Market equilibrium'.
3.) Use the point drawing tool to indicate the efficient equilibrium price
and quantity. Label this point 'Efficient equilibrium'.
Carefully follow the instructions above, and only draw the required
objects.
Price
Quantity
S₁
D₁
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