ECS3704
Assignment 1 Semester 2 2024
Unique Number:
Due Date: August 2024
QUESTION 1
In the case of pollution created by steel production, government intervention may be necessary
to address the negative externalities, as illustrated in Figure below. The diagram shows the
private demand curve (D = MSB) and the private supply or marginal cost curve (S_P = MPC).
In a typical market scenario, equilibrium occurs at point E_0, with a quantity of Q0 and price P0
. However, this equilibrium does not account for the external costs of pollution, which lead to a
higher social cost than the private cost.
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