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Chapter 31: Q. 31.1 (page 706)

The market price of insecticide is initially \(10 per unit. To address a negative externality in this market, the government decides to charge producers of insecticide for the privilege of polluting during the production process. A fee that fully takes into account the social costs of pollution is determined, and once it is put into effect, the market supply curve for insecticide shifts upward by \)4 per unit. The market price of insecticide also increases, to $12 per unit. What fee is the government charging insecticide manufacturers?

Short Answer

Expert verified

The government calculates the cost of producing insecticides by taking into account the social cost.

Step by step solution

01

Given Information

  • Initial market price of insecticide is $10per unit.
  • It shifts upward by $4 per unit in the market supply curve for insecticide.
  • insecticide's market price is also increases $12 per unit.
02

Introduction 

  • In addition to the societal cost, the government is charging $4per unit.
  • A movement of $4per unit to the right on the market supply curve shows that the government is charging $4per unit.
  • The government assesses this fee by taking into account the social cost.
03

Conclusion

  • When a government charges $4per unit, the market supply of pesticide swings higher.
  • External and private costs are combined to determine social cost.
  • The government calculates the cost of producing insecticides by taking into account the societal cost.

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Most popular questions from this chapter

Suppose that a new chief of the government agency discussed in Problem 31-7decides to reduce the number of pollution allowances that firms are permitted to own. Evaluate the effects this policy change will have on the market price of pollution allowances, and discuss whether the policy appears to be fully consistent with the original intent of creating the market for these allowances.

Suppose that initially, society experiences a degree of air cleanliness that is higher than Qo. What would be true of the marginal cost in relation to the marginal benefit, and why would this fact induce society to reduce the degree of air cleanliness towardQo?

Consider the diagram below, which displays the marginal cost and marginal benefit of water pollution abatement in a particular city, and answer the following questions.

a. What is the optimal percentage degree of water cleanliness?

b. When the optimal percentage degree of water cleanliness has been attained, what cost will be incurred for the last unit of water cleanup?

Examine the following marginal costs and marginal benefits associated with water cleanliness in a given locale:

a. What is the optimal degree of water cleanliness?

b. What is the optimal degree of water pollution?

c. Suppose that a company creates a food additive that offsets most of the harmful effects of drinking polluted water. As a result, the marginal benefit of water cleanliness declines by $40,000at each degree of water cleanliness at or less than 80 percent. What is the optimal degree of water cleanliness after this change?

Should policymakers impose additional costly anti-plastics pollution requirements if the marginal benefit of pollution abatement currently equals the marginal cost? Explain.
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