3. The effect of negative externalllies on the optimal quantityof oonsumptlon Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externalit'y for those living downstream from the factory. Producing an additional ton of paper imposes a constant external oust of $610 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $60 per ton. 200 180 Social Cost 160 O 140 O 1.5 120 2 100 O Supply PRICE (Dollars per ton of paper) (Private Cost) 2.5 80 O Demand (Private Value) 3 40 0 3.5 20 A 4.5 1 2 3 5 6 7 QUANTITY (Tons of paper) 5 5.5 The market equilibrium quantity is * tons of paper, but the socially optimal quantity of paper production is tons.The market equilibrium quantity is 7 tons of paper, but the socially optimal quantity of paper production is v E To create an incentive For the rm to produce the socially optimal quantity of paper, the government could impose a V of- per ton of paper