through an example, this time with musical accompaniment.

WORK IT OUT

Identifying the Equilibrium Price and Quantity
Table 12.3 shows the supply and demand conditions for a firm that will play trumpets on the streets when

requested. We measure output as the number of songs played.

Price

Quantity

Quantity Supplied without paying the

Quantity Supplied after paying the

Demanded

costs of the externality

costs of the externality

$20

$18

0

1

$15

2.5

$12

$10

4

5

$5

7.5

10

9

7.5

6

5

2.5

8

7

5.5

4

3

0.5

TABLE 12.3 Supply and Demand Conditions for a Trumpet-Playing Firm

Step 1. Determine the negative externality in this situation. To do this, you must think about the situation and

consider all parties that might be impacted. A negative externality might be the increase in noise pollution in the

area where the firm is playing.

Step 2. Identify the initial equilibrium price and quantity only taking private costs into account. Next, identify the
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