Homework (Ch 10) 3. The effect of negative externalities on the optimal quantityof consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant external cost of $245 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 $245 per ton. 700 630 O Social Cost 560 490 O Supply 420 (Private Cost) 350 PRICE (Dollars per ton of paper) 280 210 140 Demand 70 (Private Value) 2 3 5 6 QUANTITY (Tons of paper) The market equilibrium quantity is tons of paper, but the socially optimal quantity of paper production is tons