1. Efficiency in the presence of externalities Roses confer many external benefits on society: the beauty they add to a room or garden, the wonderful
1. Efficiency in the presence of externalities Roses confer many external benefits on society: the beauty they add to a room or garden, the wonderful aroma they give off, and so on. Therefore, the market equilibrium quantity of roses is not equal to the socially efficient quantity. The following graph shows the demand for roses (their marginal private benefit), the supply of roses (the marginal private cost of producing them), and the marginal social benefit of roses, including both the marginal private benefit and external benefits. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially efficient quantity. -+ Supply (MPC, MSC) Market Output Socially Efficient Output PRICE OF ROSES MSB Demand (MPB) QUANTITY OF ROSESAs a result, the market output is the socially efficient output. Which of the following policies could help the government achieve the socially efficient outcome? Check all that apply. Introduce emission taxes Implement tradable pollution permits Offer a subsidy to consumers equal to the vertical distance between the marginal private benefit curve and the marginal social benefit curve Offer a subsidy to producers equal to the vertical distance between the marginal private benefit curve and marginal social benefit curve Offer a subsidy equal to the price at the efficient outcome Grade It Now Save & Continue Continue without saving2. The effect of negative externalities on the efficient quantity of consumption 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 $245 per ton. The following graph shows the demand (marginal private benefit) curve and the supply (marginal private cost) curve for steel. Use the purple points (diamond symbol) to plot the marginal social cost curve when the external cost is $245 per ton. 700 630 O 560 Marginal Social Cost 490 O Supply 420 (MPC) PRICE (Dollars per ton of steel) 350 280 210 140 O O Demand 70 (MPB) 2 3 5 6 QUANTITY (Tons of steel) The market equilibrium quantity is tons of steel, but the socially efficient quantity of steel production is _ tons. To create an incentive for the firm to produce the socially efficient quantity of steel, the government could impose a of $ per ton of steel
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