Suppose that this industry results in extreme externalities. What can be said about its optimal output? Draw the supply and demand curves for paper. Does the supply curve reflect the true social costs of producing the product? If not will a supply curve reflecting the true social costs lies above or below the supply curve you have drawn? What is the equilibrium price of paper? From the point of view of reflecting the true social costs, is this price the correct one, or too low or too high?
Suppose that this industry results in extreme externalities. What can be said about its optimal output? Draw the supply and demand curves for paper. Does the supply curve reflect the true social costs of producing the product? If not will a supply curve reflecting the true social costs lies above or below the supply curve you have drawn? What is the equilibrium price of paper? From the point of view of reflecting the true social costs, is this price the correct one, or too low or too high?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter12: Environmental Protection And Negative Externalities
Section: Chapter Questions
Problem 42P: Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the...
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