5. The effect of external costs on the efficient levelConsider the market for bolts. Suppose that a hardware factory dumps toxic waste into a nearby river, creating a negative externality for those livingdownstream from the factory. Producing an additional ton of bolts imposes a constant external cost of $105 per ton. The following graph shows thedemand (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 $105 per ton.PRICE (Dollars per ton of bolts)700630500400420350280210140700ODO0O0OQUANTITY (Tons of bolts)0Supply(Private Cost)O Demand(Private Value)Social CostG The market equilibrium quantity istons of bolts, but the socially optimal quantity of bolt production istons.Grado It MosesSauna & Cont

Externality refers to the spillover effect of an economic activity on third party which is neither…

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 $105 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for bolts.

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 $105 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for bolts.

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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