What is external cost-market equilibrium and social optimum

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Reference no: EM131006513

Consider the following supply and demand schedule for a steel manufacturer: Price per ton ($) 20 40 60 80 100 120 140 160 180 Quantity Demanded (million tons) 200 180 160 140 120 100 80 60 40 Quantity Supplied (million tons) 20 60 100 140 180 220 260 300 340.

Pollution from steel production is estimated to create an external cost of $60 per ton.

What is the external cost, market equilibrium, and social optimum? Show in graph

a) In order to reach social optimal level a tax of how much should be implemented?

1. What effect would this tax have on the price that consumers pay? How would this effect consumption?

2. What effect would this tax have on production in terms of quantity supplied and the costs of production?

Reference no: EM131006513

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