3. The effect of negative externalities on the optimal quantity of consumption Consider the market for steel. Suppose that a steel manufacturing plant dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the plant. Producing an additional ton of steel imposes a constant marginal external cost (MEC) of $300 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for steel, Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $300 per ton. 1600 1350 PRICE (Delars per ton of steel) 1200 900 750 600 450 300 150 ● 1 2 3 QUANTITY (Tons of steel) 0 Supply (MPC) • Demand (MPB) MSC

3. The effect of negative externalities on the optimal quantity of consumption Consider the market for steel. Suppose that a steel manufacturing plant dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the plant. Producing an additional ton of steel imposes a constant marginal external cost (MEC) of $300 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for steel, Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $300 per ton. 1600 1350 PRICE (Delars per ton of steel) 1200 900 750 600 450 300 150 ● 1 2 3 QUANTITY (Tons of steel) 0 Supply (MPC) • Demand (MPB) MSC

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter17: Externalities And The Environment

Section: Chapter Questions

Problem 2.3P: (Negative Externalities) Suppose you wish to reduce a negative externality by imposing a tax on the...

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