The externality graph. The demand curve for a product is given by QD = 400-20P and the supply curve for a product is given by QS = 16P-32. Find the equilibrium price and quantity and illustrate graphically. Suppose MCE = 0.5Q. What happens to the marginal external cost (the marginal increase in damages from pollution) as more of the good is produced? Find the marginal social cost MCS = MCP + MCE. Illustrate this new cost curve on your graph. Find the socially optimal equilibrium price and quantity. Which area on the graph represents the net gain from moving to the socially optimal equilibrium point?