Consider the market for pharmaceuticals. Suppose that a pharmaceutical factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing additional pharmaceuticals imposes a constant per-unit external cost of $120. The following graph shows the demand (private value) curve and the supply (private cost) curve for pharmaceuticals. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $120 per unit. ? PRICE (Dollars per unit of pharmaceuticals) 800 720 640 560 480 400 3:20 240 160 80 0 0 O 1 O ☐ The market equilibrium quantity is O 2 3 5 QUANTITY (Units of pharmaceuticals) 4 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost units of pharmaceuticals, but the socially optimal quantity of pharmaceuticals production is To create an incentive for the firm to produce the socially optimal quantity of pharmaceuticals, the government could impose a per unit of pharmaceuticals. units. of
Consider the market for pharmaceuticals. Suppose that a pharmaceutical factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing additional pharmaceuticals imposes a constant per-unit external cost of $120. The following graph shows the demand (private value) curve and the supply (private cost) curve for pharmaceuticals. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $120 per unit. ? PRICE (Dollars per unit of pharmaceuticals) 800 720 640 560 480 400 3:20 240 160 80 0 0 O 1 O ☐ The market equilibrium quantity is O 2 3 5 QUANTITY (Units of pharmaceuticals) 4 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost units of pharmaceuticals, but the socially optimal quantity of pharmaceuticals production is To create an incentive for the firm to produce the socially optimal quantity of pharmaceuticals, the government could impose a per unit of pharmaceuticals. units. of
Chapter8: Market Failure
Section: Chapter Questions
Problem 2P: Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and...
Related questions
Question
100%
Transcribed Image Text:Consider the market for pharmaceuticals. Suppose that a pharmaceutical factory dumps toxic waste into a nearby river, creating a negative externality
for those living downstream from the factory. Producing additional pharmaceuticals imposes a constant per-unit external cost of $120. The following
graph shows the demand (private value) curve and the supply (private cost) curve for pharmaceuticals.
Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $120 per unit.
?
PRICE (Dollars per unit of pharmaceuticals)
800
720
640
560
480
400
3:20
240
160
80
0
0
O
1
O
☐
The market equilibrium quantity is
O
2
3
5
QUANTITY (Units of pharmaceuticals)
4
6
Supply
(Private Cost)
Demand
(Private Value)
7
Social Cost
units of pharmaceuticals, but the socially optimal quantity of pharmaceuticals production is
To create an incentive for the firm to produce the socially optimal quantity of pharmaceuticals, the government could impose a
per unit of pharmaceuticals.
units.
of
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Microeconomics (MindTap Course List)
Economics
ISBN:
9781305971493
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning