Refer to Figure 7.1 above. Because of a reduction in air pollution a farmer has experience a shift in the supply curve from S₁ to S₂. If price is p₁, the value of the reduced pollution in terms of net income (total value of output minus total production costs) to the farmer is ____________.

Question

Quizplus · Accepted Answer

The value of reduced pollution in terms of net income to the farmer is represented by the area under the new supply curve and above the price line, up to the quantity produced after the shift. This area reflects the additional revenue minus the additional costs, which corresponds to the increase in net income due to the shift in the supply curve. Since the specific areas labeled "b" and "d" would be under the new supply curve and above the price line, their sum represents the increase in net income.