Figure 15.4 Suppose there are several paper mills producing paper for a market.These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river.The waste material affects the number of fish in the river, and the use of the river for recreation and as a public water supply source.Figure 15.4 shows the paper market.Use this Figure to answer the following question(s).
-Refer to Figure 15.4.What is the deadweight loss from producing at the market equilibrium?
A)Area C
B)Area E
C)Area D
D)Area F

Question

Figure 15.4  Suppose there are several paper mills producing paper for a market.These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river.The waste material affects the number of fish in the river, and the use of the river for recreation and as a public water supply source.Figure 15.4 shows the paper market.Use this Figure to answer the following question(s).
-Refer to Figure 15.4.What is the deadweight loss from producing at the market equilibrium?
A)Area C 
B)Area E 
C)Area D 
D)Area F

Quizplus · Accepted Answer

Producing at the market equilibrium results in a deadweight loss equal to Area E. Therefore, the best choice would be for the paper mills to reduce their production and pollution levels to shift the supply curve to the left and reduce the deadweight loss. This would result in a higher price for paper and a lower quantity produced, but it would also reduce the negative externalities created by the pollution. Alternatively, implementing a pollution tax or cap and trade system could also internalize the externalities and result in a more efficient outcome.

Figure 154 Suppose There Are Several Paper Mills Producing Paper