9 . Efficiency in the presence of externalities Cars impose many external costs on society: exhaust 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, including both 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 PRICE OF CARS Demand (Private Value) QUANTITY OF CARS