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

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

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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An intermediate microeconomics question