+1 862 207 3288 supply-demand diagram
Production of good X generates pollution. Draw a supply-demand diagram for good X (assume the market is competitive).
Assume that initially the government has no environmental policy. Your diagram should have three straight lines: label them S, D, and MSC (marginal social cost). S and D intersect at point K. Assume the environmental damage per unit of good X is $30. With no policy, 100 units of X are produced and the price of a unit of X is $120, but the socially optimal (best) amount of X, taking account of the environmental damage, is 60 units, shown at point I. Show all these numbers and points K and I on your diagram.
