3. The effect of negative externalities on the optimal quantity of consumptionConsider the market for electricity. Suppose that a power plant dumps byproducts into a nearby river, creating a negative externality for those livingdownstream from the plant. Producing additional electricity imposes a constant per-unit external cost of $700. 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 $700 per unit.PRICE (Dollars per unit of electricity)200018001600140012001000Supply(Private Cost)800600400200001234Demand(Private Value)57QUANTITY (Units of electricity)Social Cost?The market equilibrium quantity is 3.5units of electricity, but the socially optimal quantity of electricity production isunits.To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose aunit of electricity.of $per

Ans. ) Given the question, where the market for electricity is considered. Here a power plant dumps…

Answered: 3. The effect of negative externalities…

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...

See similar textbooks

Similar questions

(Negative Externalities) Suppose you wish to reduce a negative externality by imposing a tax on the activity that creates that externality. When the amount of the externality produced per unit of output increases as output increases, the correct tax can be determined by using a demand-supply diagram; show this. Assume that the marginal private cost curve slopes upward. Negative Externalities: The Market for Electricity in the Midwest:
Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and output. a. Assuming that the production of televisions generates external costs, illustrate the effect of the producers being forced to pay a tax equal to the external costs generated, and indicate the equilibrium output. b. If instead of generating external costs, television production generates external benefits, illustrate the effect of the producers being given a subsidy equal to the external benefits generated, and indicate the equilibrium output.
Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. QS1 is the quantity supplied without social costs. QS2 is the quantity supplied with social costs. What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs, and then when we account for social costs. How does accounting for the externality affect the equilibrium price and quantity?
Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Fe and Qe. On the graph, shade in the deadweight loss at the market output.
Refer to Table 12.2. The externality created by the refrigerator production was 100. However, once we accounted for both the private and additional external costs, the market price increased by only 50. If the external costs were 100 why did the price only increase by 50 when we accounted for all costs?
Suppose you want to put a dollar value on the external costs of carbon emissions from a power plant. What information or data would you obtain to measure the external [not social] cost?
Identify the following situations as an example of a negative or a positive externality: You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds. Your neighbor paints his house a hideous color. Investments in private education raise your countrys standard of living. Trash dumped upstream flows downstream right past your home. Your roommate is a smoker, but you are a nonsmoker.

Recommended textbooks for you

Exploring Economics

Economics

ISBN:

9781544336329

Author:

Robert L. Sexton

Publisher:

SAGE Publications, Inc

Essentials of Economics (MindTap Course List)

Economics

ISBN:

9781337091992

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

ECON MICRO

Economics

ISBN:

9781337000536

Author:

William A. McEachern

Publisher:

Cengage Learning

Exploring Economics

Economics

ISBN:

9781544336329

Author:

Robert L. Sexton

Publisher:

SAGE Publications, Inc

Essentials of Economics (MindTap Course List)

Economics

ISBN:

9781337091992

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

ECON MICRO

Economics

ISBN:

9781337000536

Author:

William A. McEachern

Publisher:

Cengage Learning

Principles of Microeconomics

Economics

ISBN:

9781305156050

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Principles of Economics 2e

Economics

ISBN:

9781947172364

Author:

Steven A. Greenlaw; David Shapiro

Publisher:

OpenStax

Principles of Economics, 7th Edition (MindTap Cou…

Economics

ISBN:

9781285165875

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS