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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 external cost of $210 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $210 per ton. ? PRICE (Dollars per ton of steel) 700 630 560 490 420 350 280 210 140 70 0 0 O U 1 O 2 O O The market equilibrium quantity is ☐ O 3 5 QUANTITY (Tons of steel) 8 Supply (Private Cost) Demand (Private Value) 7 Social Cost tons of steel, but the socially optimal quantity of steel production is To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a of steel. subsidy tax of $ per ton

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 external cost of $210 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $210 per ton. ? PRICE (Dollars per ton of steel) 700 630 560 490 420 350 280 210 140 70 0 0 O U 1 O 2 O O The market equilibrium quantity is ☐ O 3 5 QUANTITY (Tons of steel) 8 Supply (Private Cost) Demand (Private Value) 7 Social Cost tons of steel, but the socially optimal quantity of steel production is To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a of steel. subsidy tax of $ per ton

Exploring Economics
Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter8: Market Failure
Section: Chapter Questions
Problem 2P: Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and...
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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 external cost of $210 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $210 per ton. PRICE (Dollars per ton of steel) 700 630 560 490 420 350 280 210 140 70 0 0 O ☐ 1 D 2 O D QUANTITY 1.5 The market equilibrium quantity is 2 2.5 3 3.5 3 4.5 4 5 5.5 O 5 steel) ☐ Supply (Private Cost) 6 Demand (Private Value) 7 Social Cost (?) ▼ tons of steel, but the socially optimal quantity of steel production is ▼ tons. To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a of steel. of S per ton
Transcribed Image Text: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 external cost of $210 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $210 per ton. PRICE (Dollars per ton of steel) 700 630 560 490 420 350 280 210 140 70 0 0 O ☐ 1 D 2 O D QUANTITY 1.5 The market equilibrium quantity is 2 2.5 3 3.5 3 4.5 4 5 5.5 O 5 steel) ☐ Supply (Private Cost) 6 Demand (Private Value) 7 Social Cost (?) ▼ tons of steel, but the socially optimal quantity of steel production is ▼ tons. To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a of steel. of S per ton
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 external cost of $210 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $210 per ton. PRICE (Dollars per ton of steel) 700 630 580 490 420 350 280 210 140 70 0 0 O 1 ☐ 2 3 O 4 5 QUANTITY (Tons of steel) The market equilibrium quantity is ☐ U 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost ? tons of steel, but the socially optimal quantity of steel production is To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a of steel. subsidy tax of $ per ton
Transcribed Image Text: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 external cost of $210 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $210 per ton. PRICE (Dollars per ton of steel) 700 630 580 490 420 350 280 210 140 70 0 0 O 1 ☐ 2 3 O 4 5 QUANTITY (Tons of steel) The market equilibrium quantity is ☐ U 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost ? tons of steel, but the socially optimal quantity of steel production is To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a of steel. subsidy tax of $ per ton
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