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ECS3704 ASSIGNMNET 01 2024 S2.
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ECS3704 ASSIGNMNET 042024 , SEMESTER 2
STUDENT NO:
AUGUST 10, 2024
STUDENT NO :
, ECS3704 ASSIGNMNET 04
Government Intervention in Steel Production Pollution: Analysis and
Policy Options
Introduction
The production of steel is essential for economic development, but it is
also a significant source of environmental pollution. This pollution can
negatively impact public health, the environment, and overall quality of
life. Governments often need to intervene to address these
externalities that market mechanisms alone fail to regulate.
Diagram Analysis
Figure 1: Market with Externalities
 [Note: This is a
placeholder link. Please replace it with an actual diagram as needed.]
1. Supply and Demand: The intersection of the supply and demand
curves (D1 and S1) indicates the equilibrium price (P1) and quantity (Q1)
of steel produced in a free market.
2. Social Costs* The actual social cost of steel production (S2) exceeds
the private cost (S1) due to the negative externalities of pollution. The
distance between S1 and S2 illustrates the extent of social costs that
are not reflected in the market price.
3. Welfare Loss: At equilibrium (Q1), the society loses out on welfare
due to pollution. The area between the social cost curve (S2) and the
demand curve (D1) illustrates the deadweight loss (DWL), highlighting
inefficient allocation of resources when external costs are not
accounted for.
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