Chapter 17 Chapter 17 Externalities and Public Goods
Chapter 17 Chapter 17 Externalities and Public Goods
Chapter 17 Chapter 17 Externalities and Public Goods
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4/14/2014Learn by doing <strong>17</strong>.2• Inverse Dem<strong>and</strong> Curve: Pd = 24 – Q• Inverse Supply Curve: MPC = 2 + Q• Industry emits one unit of pollutant for each ton ofchemical it produces. As long as fewer than 2 millionunits of pollutant emitted each year, the external costis zero. But when pollution exceeds 2 million units themarginal external cost is positive.Supply = 2 + QMEC = 0, when Q 22 Q whenQ 2221MEC = Q – 2for Q > 2Learn by doing <strong>17</strong>.2 (cont.)• Suppose the government wants to use an emission feeof $T that will induce the market to produce theeconomically efficient amount of the chemical, Q*.• Construct a graph <strong>and</strong> table comparing the equilibriawith <strong>and</strong> without the emission fee.7
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