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Chapter 12: Q.4 (page 293)

Table 12.5 provides the supply and demand conditions for a manufacturing firm. The third column represents a supply curve without accounting for the social cost of pollution. The fourth column represents the supply curve when the firm is required to account for the social cost of pollution. Identify the equilibrium before the social cost of production is included and after the social cost of production is included.

Short Answer

Expert verified

Without social cost: 440

With social cost:410

Step by step solution

01

Social cost : 

Social costs are costs that comprise both private costs spent by businesses and additional external costs imposed by third persons who are not involved in the manufacturing process.

02

Explanation :

The price would be $15and the quantity would be 440in the initial equilibrium before the external social cost of pollution. Once the supply curve overlaps the demand curve, it is determined. So when additional external expense of pollution is included in, production becomes more expensive, and the supply curve swings upward. The new equilibrium would be calculated using a price of $30and a quantity of 410as inputs. As a response of the price increase, the supply curve would eventually move to the left.

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Most popular questions from this chapter

Give an example of a positive externality and an example of a negative externality.

What is an externality?

A city currently emits 16million gallons (MG) of raw sewage into a lake that is beside the city. Table 12.13shows the total costs (TC) in thousands of dollars of cleaning up the sewage to different levels, together with the total benefits (TB) of doing so. Benefits include environmental, recreational, health, and industrial benefits.

a. Using the information in Table 12.13calculate the marginal costs and marginal benefits of reducing sewage emissions for this city.

b. What is the optimal level of sewage for this city? How can you tell?

Classify the following pollution-control policies as command-and-control or market incentive-based.

a. A state emissions tax on the quantity of carbon emitted by each firm.

b. The federal government requires domestic auto companies to improve car emissions by 2020.

c. The EPA sets national standards for water quality.

d. A city sells permits to firms that allow them to emit a specified quantity of pollution.

e. The federal government pays fishermen to preserve salmon.

Identify whether the market supply curve will shift right or left or will stay the same for the following:

a. Firms in an industry are required to pay a fine for their carbon dioxide emissions.

b. Companies are sued for polluting the water in a river.

c. Power plants in a specific city are not required to address the impact of their air quality emissions.

d. Companies that use fracking to remove oil and gas from rock are required to clean up the damage.
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