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to first year undergraduate microeconomics weve spent the last few presentations talking about externalities in this presentation were going to address one of the issues that tends to confuse students but is actually really really easy were going to consider the question does it matter if an externality is considered on the demand side or the supply side of the market lets start off by thinking about the negative externality created when we produce and consume electricity so far weve considered that on the supply side of a market in other words weve considered that theres an extra marginal cost extra pollution cost associated with the production of electricity so that our supply curve which is the marginal private cost is less than the marginal social cost and that difference is the marginal external cost but its not obvious if thats the right way to think about it after all if you didnt turn on the lights flick on the television or switch on the air conditioner on a hot day
