Consider the market for steel. Suppose that a steel manufacturing plant dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the plant. Producing an additional ton of steel imposes a constant external cost of $100 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $100 per ton. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $100 per ton. 500 450 Social Cost 400 350 300 250 200 150 100 50 0 PRICE (Dollars per ton of steel) + 0 O O □ O n O 2 3 4 5 QUANTITY (Tons of steel) 6 Supply (Private Cost) Demand (Private Value) The market equilibrium quantity is tons of steel, but the socially optimal quantity of steel production is tons. To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a of steel.. per ton