The graph linked below portrays a market for a good whose production causes a negative externality. The curve marked internal shows the market supply when producers pay only their internal costs; the curve marked social shows supply when producers pay social costs. The socially optimal price is than the market equilibrium price, and the socially optimal output level is than the market equilibrium output level. Price E5 = social optimum E M = ma rlnet equilibrium Qs QM Quantity