Explanation

When there is an external societal cost or benefit to a good, this is called an externality. Externalities are inefficiencies in the market. The production or consumption of the externality can be subject to taxation or subsidization to produce the socially optimal price (P_so) and socially optimal quantity (Q_so).

In this space, an explanation of the desired shift will appear.

Select a shift first.

The market is overproducing the good, and producing this good causes a cost to the public. The social cost of production is greater than the private cost. To fix the issue, the government may choose to tax the producers of this good in order to shift the supply curve to the left. This shifts production to the socially optimal price (P_so) and socially optimal quantity (Q_so).

The market equilibrium was inefficient to society, as shown by the deadweight loss. Taxing producers will leave society better off.

The good has a spillover cost to society. Every unit of private production of the good generates a spillover cost to society, as shown from the marginal social cost curve being to the left of the marginal private cost curve.

The free market is over allocating production of the good. On the graph, this is shown by the socially optimal quantity (Q_SO) being less than the equilibrium quantity (Q_e).

The market is underproducing the good since the production of more goods will bring more benefit to society. The social cost of production is greater than the private cost. To fix the issue, the government may choose to subsidize the producers of this good in order to shift the supply curve to the right. This shifts production to the socially optimal price (_Pso) and socially optimal quantity (Q_so).

The market equilibrium was inefficient to society, as shown by the deadweight loss. Subsidizing producers will leave society better off.

The good has a spillover benefit to society. Every unit of private production of the good generates a spillover benefit to society as shown from the marginal social cost curve being to the right of the marginal private cost curve.

The free market is under allocating production of the good. On the graph, this is shown by the socially optimal quantity (Q_SO) being greater than the equilibrium quantity (Q_e).

The market is overconsuming the good, and consuming this good causes a cost to the public. The social benefit of consumption is less than the private benefit. To fix the issue, the government may choose to tax the consumers of this good in order to shift the demand curve to the left. This shifts production to the socially optimal price (P_so) and socially optimal quantity (Q_so).

The market equilibrium was inefficient to society, as shown by the deadweight loss. Taxing consumers will leave society better off.

The good has a spillover cost to society. Every unit of private consumption of the good generates a spillover cost to society, as shown from the marginal social benefit curve being to the left of the marginal private benefits curve.

The free market is over allocating production of the good. On the graph, this is shown by the socially optimal quantity (Q_SO) being less than the equilibrium quantity (Q_e).

The market is under consuming the good since the consumption of more goods will bring more benefit to society. The social benefit of consumption is greater than the private benefit. To fix the issue, the government may choose to subsidize the consumers of this good in order to shift the demand curve to the right. This shifts production to the socially optimal price (P_so) and socially optimal quantity (Q_so).

The market equilibrium was inefficient to society, as shown by the deadweight loss. Subsidizing consumers will leave society better off.

The good has a spillover benefit to society. Every unit of private consumption of the good generates a spillover benefit to society as shown from the marginal social benefit curve being to the right of the marginal private benefit curve.

The free market is under allocating consumption of the good. On the graph, this is shown by the socially optimal quantity (Q_SO) being greater than the equilibrium quantity (Q_e).