A chemical plant produces industrial solvents. For each gallon of solvent produced, the plant incurs $10 in costs for labor and raw materials. The production process also releases waste into a nearby lake, which reduces the local fish population and costs the local tourism industry an estimated $4 in lost revenue for each gallon produced. What is the cost imposed on others from the production of one additional gallon of solvent?

Analyzing Costs of an Externality

Identifying External Costs in Production

A power plant emits pollutants that cause an estimated $500,000 in health and environmental damages to the surrounding community each year. Based on this information, the cost imposed on others by the production of one additional megawatt-hour of electricity is $500,000.

A factory's production process creates noise pollution that affects the local community. Match each type of cost associated with producing one more unit with its correct description.

Understanding Marginal External Cost

The cost imposed on parties not directly involved in a transaction when one more unit of a good is produced is known as the __________.

A paper mill situated on a river produces 1,000 tons of paper per month. This level of production creates water pollution that results in a total of $50,000 in damages per month to a downstream commercial fishery. If the mill were to produce one additional ton of paper, the estimated additional damage to the fishery would be $60. The cost for the mill itself to produce one more ton of paper is $200.

Which of the following values represents the cost imposed on others by the production of one additional ton of paper?

Calculating Marginal Damage from Production

Example of Marginal External Cost

Explaining an External Cost from Congestion

Marginal Social Cost (MSC) (Definition and Formula)

Marginal Social Cost (MSC) as the Sum of MPC and MEC