Core Assessment Project

Instructions

What is a negative externality? Construct a graph for the market for Steel showing

the market price and quantity when the firms are dumping their industrial waste in

the local waterways. What is the motivation for firms to pollute the local waterways?

Explain how third parties are adversely affected from the pollution and how the

negative externality can be internalized. Draw into the graph the appropriate shift of

the supply curve which will remedy the negative externality and bring about the

socially optimal level of output.

What is a positive externality? Construct a graph for the market for vaccine shots

showing the market price and quantity.

Explain how third parties are benefiting from those who consume vaccine shots and

how the positive externality can be internalized. Draw into the graph the appropriate

shift of the demand curve which will remedy the positive externality.