3. The effect of negative externalities on the optimal quantity of consumption Consider the market for bolts. Suppose that a hardware factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of bolts imposes a constant external cost of $385 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for bolts. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $385 per ton. ? PRICE (Dollars per ton of bolts) 1100 900 880 770 000 550 440 330 220 110 0 0 O 1 Q O 3 5 QUANTITY (Tons of bolts) 6 W Supply (Private Cost) Demand (Private Value) Social Cost

3. The effect of negative externalities on the optimal quantity of consumption Consider the market for bolts. Suppose that a hardware factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of bolts imposes a constant external cost of $385 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for bolts. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $385 per ton. ? PRICE (Dollars per ton of bolts) 1100 900 880 770 000 550 440 330 220 110 0 0 O 1 Q O 3 5 QUANTITY (Tons of bolts) 6 W Supply (Private Cost) Demand (Private Value) Social Cost

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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