Answered step by step
Verified Expert Solution
Link Copied!

Question

00
1 Approved Answer

Please help me figure out how to formulate this? 3. The effect of negative externalities on the optimal quantityof consumption Consider the market for electricity.

Please help me figure out how to formulate this?

image text in transcribed
3. The effect of negative externalities on the optimal quantityof consumption Consider the market for electricity. Suppose that a power plant dumps byproducts into a nearby river, creating a negative externality for those living downstream from the plant. Producing additional electricity imposes a constant per-unit external cost of $150. 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 $150 per unit. 1000 900 O Social Cost 800 700 O Supply 1.5 600 (Private Cost) 500 PRICE (Dollars per unit of electricity) 2.5 400 2 300 200 3.5 Demand 100 (Private Value) 4 4.5 2 3 5 QUANTITY (Units of electricity) 5 5.5 The market equilibrium quantity is * units of electricity, but the socially optimal quantity of electricity production is _ units. To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose a of $ per unit of electricity

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Statistics For Business And Economics

Authors: James T. McClave, P. George Benson, Terry Sincich

13th Edition

134506596, 978-0134506593

Students also viewed these Economics questions

Question

600 lb 20 0.5 ft 30 30 5 ft

Answered: 1 week ago