Cars impose many external costs on society: carbon dioxide emissions that contribute to air pollution, congestion on roadways, and so on. Therefore, the market equilibrium quantity of cars is not equal to the socially optimal quantity. The following graph shows the demand for cars (their private value), the supply of cars (the private cost of producing them), and the social cost of cars (the private cost and external costs).

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Cars impose many external costs on society: carbon dioxide emissions that contribute to air pollution, congestion on roadways, and so on. Therefore, the market equilibrium quantity of cars is not equal to the socially optimal quantity. The following graph shows the demand for cars (their private value), the supply of cars (the private cost of producing them), and the social cost of cars (the private cost and external costs).
 
3. Efficiency in the presence of externalities
Cars impose many external costs on society: carbon dioxide emissions that contribute to air pollution, congestion on roadways, and so on. Therefore,
the market equilibrium quantity of cars is not equal to the socially optimal quantity. The following graph shows the demand for cars (their private
value), the supply of cars (the private cost of producing them), and the social cost of cars (the private cost and external costs).
Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially
optimal quantity.
Social Cost
Market Equilibrium
Supply
(Private Cost)
Socially Optimal Level
Demand
(Private Value)
QUANTITY OF CARS
PRICE OF CARS
Transcribed Image Text:3. Efficiency in the presence of externalities Cars impose many external costs on society: carbon dioxide emissions that contribute to air pollution, congestion on roadways, and so on. Therefore, the market equilibrium quantity of cars is not equal to the socially optimal quantity. The following graph shows the demand for cars (their private value), the supply of cars (the private cost of producing them), and the social cost of cars (the private cost and external costs). Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity. Social Cost Market Equilibrium Supply (Private Cost) Socially Optimal Level Demand (Private Value) QUANTITY OF CARS PRICE OF CARS
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