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The diagram to the right shows the perfectly competitive market for steel. The demand curve shows the marginal benefit to society of consuming an extra

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The diagram to the right shows the perfectly competitive market for steel. The demand curve shows the marginal benefit to society of consuming an extra unit of steel (MB). The supply curve shows the S = MCs firms' marginal costs of producing an extra unit of steel (MCp). Suppose that, as a byproduct to producing steel, harmful smoke is S = MCp produced that pollutes the air that nearby residents breathe. Suppose that for each unit of steel produced, one unit of toxic air is also produced, imposing an external cost of $6, as illustrated in the graph to the right. Price of Steel ($) With a negative externality, the free market will produce too much of the good. In this instance, the free market will produce units too many of D = MB steel. (Round your response to the nearest whole number.) 10 12 14 16 18 20 Quantity of Steel

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