China had been confronting a major issue about an adulteration in the main water sources for supplying of Chinese selling bottled-water firms on account of a leak from an oil company’s pipeline and over extraction. For this reason, a negative production externalities were widely spread toward all consumers in China and reduced their the quality of lives. A negative production externality(also called: negative spill effect, or external cost) is negative side-effect out of production activities which is suffered by a third party. Simultaneously, the demands of consumers for water bottled-water was much higher than the capability of supplying of Chinese selling bottled-water firms. Therefore, Consumers’ demands in China seem to turn back to Chinese
…show more content…
The supply curves are given by MPC(Marginal Private Cost) reflects the bottled-water firm’s private costs of production and the marginal social cost curve given by MSC(Marginal Social Cost) represents the full cost of production to society. The demand curve is given by MSB(Marginal Social Benefit) indicates the full benefit of production to society. The vertical difference between MPC and MSC represents negative externality that were created from China’s main water sources for making bottled-waters were polluted by over extraction and a leak from an oil company’s pipeline; Therefore, social costs, MSC, are greater than the firm’s private costs, MSC, by the amount of externality. The optimal production quantity is Q*, but the negative externality results in production of Q1 at market production quantity; Thus, the deadweight loss is shown in black. The socially efficient output is where MSC = MSB, at Q*, which is a lower output than the market equilibrium output, at …show more content…
Owing to the price of a single-serving bottles were sold around 1yuan(16 cents), it was very difficult for many bottled-water firms to produce a good quality product and the same time with earning a high profit. Even it was hard for firms to manage, most Chinese firms still set their price low for meeting the right preference of Chinese consumers due to the fact that a cheaper price of bottles of water are more preferable for Chinese consumers than expensive mineral waters. Because of this, most firms tended to overuse the water sources, which are considered as a common resources, to keep their production cost at a low level and supply a substandard bottled-water to consumers. As a result, it created a tragedy in commons to common resources and diffused a negative externality to their consumers. Eventually, Government intervention is requisite. New pricing system was set to limit the accessibility for common resources’ users to reduce overusing of common
The supply curves are given by MPC(Marginal Private Cost) reflects the bottled-water firm’s private costs of production and the marginal social cost curve given by MSC(Marginal Social Cost) represents the full cost of production to society. The demand curve is given by MSB(Marginal Social Benefit) indicates the full benefit of production to society. The vertical difference between MPC and MSC represents negative externality that were created from China’s main water sources for making bottled-waters were polluted by over extraction and a leak from an oil company’s pipeline; Therefore, social costs, MSC, are greater than the firm’s private costs, MSC, by the amount of externality. The optimal production quantity is Q*, but the negative externality results in production of Q1 at market production quantity; Thus, the deadweight loss is shown in black. The socially efficient output is where MSC = MSB, at Q*, which is a lower output than the market equilibrium output, at …show more content…
Owing to the price of a single-serving bottles were sold around 1yuan(16 cents), it was very difficult for many bottled-water firms to produce a good quality product and the same time with earning a high profit. Even it was hard for firms to manage, most Chinese firms still set their price low for meeting the right preference of Chinese consumers due to the fact that a cheaper price of bottles of water are more preferable for Chinese consumers than expensive mineral waters. Because of this, most firms tended to overuse the water sources, which are considered as a common resources, to keep their production cost at a low level and supply a substandard bottled-water to consumers. As a result, it created a tragedy in commons to common resources and diffused a negative externality to their consumers. Eventually, Government intervention is requisite. New pricing system was set to limit the accessibility for common resources’ users to reduce overusing of common