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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

Consider the diagram below and respond to the questions that follow.

a. Assume that a new technique for decreasing water pollution lowers the marginal cost of pollution reduction at every level of water cleanliness. Will the ideal % degree of water cleanliness rise or decline after this event? Will the cost of the final unit of water cleanup grow or decrease? Include a visual to help you explain your point.

b. Assume that the event described in item (a) occurs, and that medical studies show that the marginal benefit from reducing water pollution is higher at all levels of water purity. Will the ideal % degree of water cleanliness rise or decrease after both events? Can you predict whether the cost of the last unit of water cleanup will increase or decrease as compared to the initial optimum? To help you clarify your answers, create a new diagram.

Explain why a society usually would not determine that a degree of 0 per cent air cleanliness is optimal.

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

Why do you suppose that some observers have called for requiring installation of devices that would enable governments to monitor households' energy consumption?

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 $12per unit. What fee is the government charging insecticide manufacturers?
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