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.PriceQuantity DemandedQuantity Supplied without Paying Social CostsQuantity Supplied after Paying Social Costs100012075801010050553090304055852530808020201006515The equilibrium price and quantity when social costs are taken into account areQuestion 12 options: Price = $55, Quantity = 30 Price = $40, Quantity = 55 Price = $30, Quantity = 20 Price = $30, Quantity = 80

As the market creates negative externality, without government intervention the market equilibrium is where Demand = private cost ie 80 widgets But when the government intervenes to correct the market failure, then social cost rises and the socially optimal point is where demand = Social cost ie 30 widgets and price is 55 $ Therefore answer is “Price = $55, Quantity = 30”

Answered: The supply and demand conditions facing…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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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

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