When Domestic Production Causes Domestic Pollution
(Figure 12.4)

Figure 12.4 shows the Canadian market for paper, with the domestic supply curve reflecting the private marginal cost of production and the domestic demand curve reflecting the private marginal benefits of paper consumption (which are also the social marginal benefits if there are no external benefits). The bottom half of Figure 12.4 shows the additional costs imposed on the country by the pollution that results from production of paper in the country. We keep track of this negative externality using the marginal social side costs (MSSC) of the pollution. To keep the analysis simple, we assume that the external cost of the pollution is constant at $0.30 per ream of paper.
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