3. The effect of negative externalities on the optimal quantity of consumption Consider the market for electric cars. Suppose that a electric car manufacturing facility dumps sludge into a nearby river, creating a negative extemality for those living downstream from the facility. Producing additional electric cars imposes a constant perunit external cost of $300. The following graph shows the demand {private value} curve and the suppl',r (private cost) curve for electric cars. \fE 0 Sum\"! {Pn'vate Cost] PRICE (Dollars per unit of electric .3; 8 Demand [Private 1Ilialue) N E The market equilibrium quantity i5 '7 units of electric cars, but the socially optimal quantity' of electric car production is. Y units. 1400 O 0 Supply 1.5 1200 (Private Cost) 1000 O 2 PRICE (Dollars per unit of electric 800 2.5 600 O 3 400 O 3.5 O Demand 200 (Private Value) 4 0 4.5 1 2 3 5 QUANTITY (Units of electric cars) 5 5.5 The market equilibrium quantity is 7 units of electric cars, but the socially optimal quantity of electric car production is LItax 'he market equilibrium quantity.r is V units of electric cars, but the sociall'i-r optimal quantity of electric car production is. . 5U SI 3; '0 create an incentive for the rm to produce the socially.r optimal quantity.r of electric cars, the government could impose a V of- :er unit of electric cars