Question

A bielogicat corporation dueips inediral weste inke a local water resetwoe 7. The free diplay of fiewarki cove the Oharien dores en the 4th of kity erke batation 2. The selier of an automotile knowi that the vehiole he it selling was in a majer accident. and it as nearly impotsitile co get the vohicle in perfect alignment, this is knden ais Consider the illutration to the rigu that shows the market for steel production. The initial private isupply curve does not astocen for the erternatcents for the production of a seel. ldentify at least thiree negative citemal spaberer effects assiocialed with the production of steet. A. E. c. What ane some of the issues associated at the intersection at the private upply and demand equibbriam? Use the graph above to solve the followire scenarios. The initial private supply curre does not account for the external costs of steel production. 1. Draw a dotted line on the eraph to indicate the actual prwate costs and output in the steri market. 2. Draw a solid line on the maph to show the ideal social supply and demand output level. 3. What is Efficient Equalibriam? 4. Haw might the government force manufacturers to internalite (bear) the full costs of steel production?

Answer 1

In economics, the production of steel has negative externalities like pollution that are not reflected in its market price, leading to a higher market quantity than the socially optimal amount. A price increase in steel leads to a decrease in the quantity supplied by car manufacturers. The government can intervene to make producers internalize external costs, leading to an efficient equilibrium.

Step-by-step explanation:

The question involves understanding the externalities and market equilibrium in steel production - a topic under economics. Negative externalities of steel production may include pollution, health issues related to pollution, and depletion of natural resources. These costs are not reflected in the market price of steel, leading to what economists call market failure. The market equilibrium does not account for these social costs, and thus, the market quantity is higher than the socially optimal quantity.

When the price of steel rises, car manufacturers will supply a lower quantity of cars, which can be represented by a leftward shift in the supply curve from So to S₁. At the price of $20,000, the quantity supplied decreases from 18 million to 16.5 million. To correct for the externalities, the government can implement policies such as taxes or regulations, which force manufacturers to internalize the full costs of production, shifting the supply curve leftward and reducing the quantity produced to a socially efficient equilibrium.