A worksheet to help introduce students to the concept of a negative externality and visualize such an externality using a market diagram.
Students are asked to compute the total private benefits, total private costs, and net private benefits for a smoker consuming a given number of cigarettes and then identifying the "optimal" number of cigarettes this smoker will choose to smoke in order to maximize their net private benefits.
They are then also provided information regarding the external costs associated with smoking and asked to calculate the marginal social cost, total social benefit, total social cost, and net social cost of smoking a given number of cigarettes in order to identify the "socially optimal" quantity of cigarettes after accounting for the external costs of the activity.
Finally, they are to graph the marginal private cost, marginal social cost, and marginal private/social benefit curves to illustrate the difference between the private market outcome and the "socially optimal" outcome.
The graph of a positive externality (flu shots) is also provided on the back for students to interpret.