Question

Suppose the demand and supply curve for crude oil at any given period is: curve equation. Furthermore, for each barrel of oil produced, there is $32 worth of negative externality. What is the equilibrium price?

a) $X
b) $Y
c) $Z
d) $W

Answer 1

In Economics, accounting for a $32 negative externality shifts the supply curve for crude oil, resulting in a new market equilibrium price of $30 and a lower equilibrium quantity of 410 barrels.

Step-by-step explanation:

The student is dealing with a concept in Economics related to market equilibrium and externalities. Specifically, this question addresses the impact of negative externalities on the supply curve for crude oil. A negative externality is a cost that affects a party who did not choose to incur that cost. In this case, the $32 worth of negative externality from oil production is an additional cost that shifts the supply curve upwards.

In the absence of external costs, the original equilibrium is at a price of $15 and a quantity of 440. When the external cost of $32 per barrel is internalized, it results in a new equilibrium with a higher price and lower quantity: a price of $30 and a quantity of 410. This shift to a new equilibrium point reflects the increased costs to producers, which are now passed on to consumers in the form of higher prices.