Daily Review -- Externalities

What kind of externality is graphed to the left?  If you recognized this as a negative externality congratulate yourself.

When economic actors do not take into account all of the costs they impose on others, the costs to society are higher, as shown by the Marginal Social Cost curve that is above the Marginal Private Cost.

A barking dog, loud music, pollution, and even slow moving vehicles can cause costs to be imposed on society that are not accounted for by the private actor.

You might recall that a Pigovian Tax would correct the externality.  In this case, the socially optimal output would be 4 units.