Answer to Question #55288 in Microeconomics for edrian
3. Pollution is considered by most a negative externality. Some economists would like to see the costs of these burdens incorporated into the price of goods that we buy. For instance, since coal-fired power plants increase emissions that could potentially lead to climate change, these economists believe that the price we pay for electricity is not high enough.
a.) Draw a completely labeled graph and illustrate on the graph how much higher electricity prices would be if the full costs of electricity production were taken into account. You do not need to provide actual numbers; rather, show on the price axis where the price would be before the externality is considered and where the price would be after the externality is considered.
b.) What problems might exist in determining this new, externality-based price?