Question 21 1 pts Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced? There is not enough information to answer the question. The after-tax equilibrium quantity is less than the socially optimal quantity. They are equal. The after-tax equilibrium quantity is greater than the socially optimal quantity.
Added by Benjamin D.
Close
Step 1
The tax imposed by the government is $8 per unit. Show more…
Show all steps
Your feedback will help us improve your experience
Nick Johnson and 76 other Microeconomics educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
Nick J.
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. The market equilibrium quantity is tons of bolts, but the socially optimal quantity of bolt production is tons. To create an incentive for the firm to produce the socially optimal quantity of bolts, the government could impose a of per ton of bolts.
Andrew D.
3. The effect of negative externalities on the optimal quantity of consumption Consider the market for electric cars. Suppose that an electric car manufacturing facility dumps sludge into a nearby river, creating a negative externality for those living downstream from the facility. Producing additional electric cars imposes a constant per-unit external cost of $600. The following graph shows the demand (private value) curve and the supply (private cost) curve for electric cars. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $600 per unit. PRICE (Dollars per unit of electric cars) 2000 1800 1600 1400 1200 1000 800 600 400 200 0 0 1 2 3 4 5 6 7 QUANTITY (Units of electric cars) Social Cost Supply (Private Cost) Demand (Private Value) The market equilibrium quantity is units of electric cars, but the socially optimal quantity of electric car production is units. To create an incentive for the firm to produce the socially optimal quantity of electric cars, the government could impose a of $ per unit of electric cars.
Akash M.
Recommended Textbooks
Principles of Economics
Principles of Microeconomics for AP® Courses
Economics
Transcript
18,000,000+
Students on Numerade
Trusted by students at 8,000+ universities
Watch the video solution with this free unlock.
EMAIL
PASSWORD