Consider the market for steel. Suppose that a steel manufacturing plant dumps toxic waste into a...

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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 $180 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $180 per ton. (?) 800 540 Social Cost 480 420 360 300 Supply (Private Cost) 240 Demand 180 (Private Value) 120 60 + 1 2 3 5 QUANTITY (Tons of steel) The market equilibrium quantity is tons of steel, but the socially optimal quantity of steel production is tons. To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a of $ per of steel. PRICE (Dollars per ton of steel) 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 $180 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $180 per ton. (?) 800 540 Social Cost 480 420 360 300 Supply (Private Cost) 240 Demand 180 (Private Value) 120 60 + 1 2 3 5 QUANTITY (Tons of steel) The market equilibrium quantity is tons of steel, but the socially optimal quantity of steel production is tons. To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a of $ per of steel. PRICE (Dollars per ton of steel)

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