In the following figure, the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation. Figure 26.2 In the figure,
D: Demand curve for automobiles
S₁: Supply curve of automobiles prior to regulation
S₂: Supply curve of automobiles after regulation
FG: Clean up cost per unit
According to Figure 26.2, the total clean up cost for the society prior to regulation is:

Question

In the following figure, the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation. Figure 26.2

In the figure,
D: Demand curve for automobiles
S₁: Supply curve of automobiles prior to regulation
S₂: Supply curve of automobiles after regulation
FG: Clean up cost per unit
According to Figure 26.2, the total clean up cost for the society prior to regulation is:

Quizplus · Accepted Answer

The total clean up cost for the society prior to regulation is represented by the area 0FGQ₁. This is because the market is producing at point E where the quantity supplied and demanded is Q1, and the cost of pollution is represented by the distance between the supply curve (S₁) and the social cost curve (FG). The area 0FGQ₁ represents the total cost of pollution (FG multiplied by Q1).

In the Following Figure, the First Panel Shows a Market