3. The effect of negative externalities on the optimal quantity of consumption Consider the market for bolts. Imagine that a hardware factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional tonne of bolts imposes a constant external cost of $220 per tonne. The following graph shows the demand (private value) curve and the supply (private cost) curve for bolts. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $220 per tonne. 1100 990 Social Cost 880 O 770 O 660 O Supply Private Cost) 550 PRICE (Dollars per tonne of bolts) 440 O Demand 330 (Private Value) 220 110 2 3 5 6 QUANTITY (Tonnes of bolts)