Now imagine that firms which produce refrigerators must factor in these external costs of pollution—that is,

the firms have to consider not only labor and material costs, but also the broader costs to society of harm to

health and other costs caused by pollution. If the firm is required to pay $100 for the additional external costs
of pollution each time it produces a refrigerator, production becomes more costly and the entire supply curve

shifts up by $100.

As Table 12.2 and Figure 12.2 illustrate, the firm will need to receive a price of $700 per refrigerator and
produce a quantity of 40,000—and the firm’s new supply curve will be Ssocial. The new equilibrium will occur at

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12.1 • The Economics of Pollution 285

E1. In short, taking the additional external costs of pollution into account results in a higher price, a lower
quantity of production, and a lower quantity of pollution. The following Work It Out feature will walk you
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