PRICE (Dollars per unit of electricity) Consider the market for electricity. Suppose that a power plant dumps byproducts into a nearby river, creating a negative externality for those living downstream from the plant. Producing additional electricity imposes a constant per-unit external cost of $300. The following graph shows the demand (private value) curve and the supply (private cost) curve for electricity. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $300 per unit. 1000 g 900 800 700 600 500 400 300 200 100 0 1 2 3 ° 4 Supply (Private Cost) Demand (Private Value) 5 6 7 QUANTITY (Units of electricity) Social Cost The market equilibrium quantity is, units of electricity, but the socially optimal quantity of electricity production is To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose a unit of electricity. units. per

Compared to a good with no externalities, a good with a negative externality appear to have experienced a will at each corresponding price. OIncrease in Supply ODecrease in Supply OIncrease in Demand ODecrease in Demand

The Cemex plant in Davenport produced cement. The production of cement created dust which traveled through the air and landed on the nearby area. Testing at an elementary school and fire department near the plant showed toxic levels of Chromium 6 resulting from the dust. Using the concept of externalities and the graph below, explain what kind of externality this event created and the effects this had on economic efficiency. Be sure to indicate any differences between market price and quantity for cement and the efficient price and quantity.

The supply and demand conditions facing a firm that makes widgets and generates a negative externality by dumping a highly toxic sludge in a nearby river is given in the table below. Price Quantity Demanded Quantity Supplied without Paying Social Costs Quantity Supplied after Paying Social Costs 100 0 120 75 80 10 100 50 55 30 90 30 40 55 85 25 30 80 80 20 20 100 65 15 The equilibrium price and quantity when social costs are taken into account are Question 12 options:   Price = $55, Quantity = 30   Price = $40, Quantity = 55   Price = $30, Quantity = 20   Price = $30, Quantity = 80

Consider the market for electricity. Suppose that a power plant dumps byproducts into a nearby river, creating a negative externality for those living downstream from the plant. Producing additional electricity imposes a constant per-unit external cost of $240. The following graph shows the demand (private value) curve and the supply (private cost) curve for electricity. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $240 per unit. PRICE (Dollars per unit of electricity) 800 720 640 560 480 400+ 320 240 Supply (Private Cost) Demand (Private Value) 160 [- 80 0 0 1 2 3 4 5 6 7 QUANTITY (Units of electricity) Social Cost ? The market equilibrium quantity is units of electricity, but the socially optimal quantity of electricity production is units. To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose a unit of electricity. of per

Consider a market with the following supply and demand.  (It may help to draw a graph for these questions.) P            5            6            7            8            9            10            11            12           13           14 QS        200       300        400       500        600        700         800          900        1000       1100 QD       800       750        700       650        600        550         500          450         400         350 If there is an external cost of $3, what is the efficient quantity? If there is an external benefit of $3, what is the efficient quantity? For the remaining questions assume that there is a $3 external COST. If the government wants to get the efficient quantity with a per/unit tax, how much should the tax be? Now imagine that they use tradable allowances.  If they cap the quantity at 400 what would the value of these allowance be in the market?  (Assume the market is perfectly competitive and that "one allowance" lets you…

An intermediate microeconomics question

You have the following supply and demand curves for an industry:             QSX = -100 + 3 * PX         for PX >= $40                            QDX = 300 – 2 * PX However, this industry causes pollution damage to third parties.  Each quantity produced creates pollution that causes equal damage, such that the marginal external cost is a constant $20 per unit (MEC= $20). a) Calculate the price quantity combinations for both the perfectly competitive and the efficient solution. Graphically show both solutions as well. Make sure you label all curves and axes. b) What efficient tax would move the competitive market to the efficient solution?

The graph above shows the market for paper. The marginal social cost is higher than the marginal private cost A)since the marginal social cost includes all the costs of production, including the value of the externality B)since the marginal private cost includes all the costs of production, including the value of the externality C)because there is no externality in this market D)because for each level of production the social cost is less than the private cost

The market for seasonal flu shots is depicted in the graph. As more people receive flu shots, fewer people catch the flu and potentially pass it on to others. Therefore, the chance of catching the flu decreases for everyone, even those who do not purchase a flu shot. This is an example of a positive externality. The graph contains the private demand curve (D1) and the supply curve. D1 does not take into consideration the social benefit of people getting flu shots. Graph the social demand curve by placing the end points of D2 at the correct locations. Then, indicate the dead weight loss to society by placing the DWL triangle in the correct location on the graph. The Market for Flu Vaccinations D2 (marginal soeial benefit) DWL supply D1 (marginal private benefit) Quantity of flu shots Price ($)