Plastic Manufacturing Is One of the Most Environmentally Polluting Production

Essay

Plastic manufacturing is one of the most environmentally polluting production processes. Suppose that plastic is produced in a perfectly competitive market and that each unit of plastic produced creates a negative externality of $2.
a. Draw a supply and demand graph clearly marking the following:
1) marginal private benefit curve (assume that marginal social benefit and marginal private benefit are the same)
2) marginal private cost curve
3) marginal social cost curve
b) On the graph, mark the points that show the free-market equilibrium and the socially optimal level of price and quantity.
c) Mark the area of deadweight loss, and explain why the free-market equilibrium leads to a deadweight loss.
d) Provide one remedy for the negative externality associated with the production of plastic.