Consider the market for electricity austrated in the figure to the right S repre
ID: 1163549 • Letter: C
Question
Consider the market for electricity austrated in the figure to the right S represents trhe marginal private cost of production and D, represents the marginal private beneft of consumption Assume the production of electriaity generates a negative extemalty such that S2 represents the marginal social cost of s2 electricity. In the presence of a negative extemality, the market equilbrium will produce Use the triangle drawing tool to shade in the deadweight loss created by the negative extemality in production. Properly Y of the good abel this shaded area Carelully follow the instructions above, and only draw the required object Di Cick the graph, choose a tool in the palette and tolow the instructions to creabe your graph MacBook Air ?0Explanation / Answer
Given that there is a negative externality the marginal social cost will be higher than the marginal private cost. This will mean that the amount produced of the good will be lesser than without the externality. Thus less of the good will be produced.
The deadweight loss will be the triangle given by the area between the two prices and the two quantities. This is given by the extent of the over production.