The private market for oil results in an equilibrium quantity if 15 million gallons. The production of oil creates a negative externality, so the socially optimal quantity of oil is 10 million gallons.
(a) Draw a graph that shows marginal social benefit, marginal private benefit, marginal social cost, and marginal private cost.
(b) Does the private market for oil over or under produce?
(c) Label the deadweight loss created by the negative externality on the graph
(d) Draw how a quota could shift the market for oil to the socially optimal equilibrium on the graph