Because of the externality the cost to society of producing aluminum is larger

Because of the externality the cost to society of

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Because of the externality, the cost to  society  of producing aluminum is larger than the  cost to the aluminum producers. For each unit of aluminum produced, the  social cost  includes the private costs of the aluminum producers plus the costs to those  bystanders affected adversely by the pollution.  Figure 2 , shows the social cost of  producing aluminum. The social-cost curve is above the supply curve because it takes  into account the external costs imposed on society by aluminum production. The  difference between these two curves reflects the cost of the pollution emitted. What quantity of aluminum should be produced? To answer this question, we once  again consider what a benevolent social planner would do. The planner wants to  maximize the total surplus derived from the market—the value to consumers of  aluminum minus the cost of producing aluminum. The planner understands, however,  that the cost of producing aluminum includes the external costs of the pollution. The planner would choose the level of aluminum production at which the demand  curve crosses the social-cost curve. This intersection determines the optimal amount of  aluminum from the standpoint of society as a whole. Below this level of production,  the value of the aluminum to consumers (as measured by the height of the demand  curve) exceeds the social cost of producing it (as measured by the height of the social- cost curve). The planner does not produce more than this level because the social cost  of producing additional aluminum exceeds the value to consumers. Note that the equilibrium quantity of aluminum, Q MARKET, is larger than the socially  optimal quantity, Q OPTIMUM . This inefficiency occurs because the market  equilibrium reflects only the private costs of production. In the market equilibrium,  the marginal consumer values aluminum at less than the social cost of producing it.  That is, at Q MARKET, the demand curve lies below the social-cost curve. Thus,  reducing aluminum production and consumption below the market equilibrium level  raises total economic well-being. Figure 2 Pollution and the Social Optimum In the presence of a negative externality, such as pollution, the social cost of the good exceeds the private cost. The optimal quantity. Q OPTIMUM, is therefore smaller than the equilibrium quantity
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How can the social planner achieve the optimal outcome? One way would be to tax  aluminum producers for each ton of aluminum sold. The tax would shift the supply  curve for aluminum upward by the size of the tax. If the tax accurately reflected the 
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