Essay
Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500th fire extinguisher entails the following:
• a private cost of $10;
• an external cost of $0;
• a private value of $9;
• an external benefit of $3.
-Refer to Scenario 10-4. In order to reach the social optimum, should fire extinguishers be taxed or subsidized? What is the appropriate amount of the tax or subsidy on each fire extinguisher?
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