ON A GRAPH: 1) Show S and D for a product (let's use gasoline) 2) Show MSC when there are NO spillover costs (producer pays ALL costs) Show the profit maximizing quantity Show the allocatively efficient quantity (assume D=MSB, i.e. no spillover benefits) 3) Show what happens to S if there ARE spillover costs (the producer can AVOID some costs) 4) Show the market P, Q, and efficiency WITH spillover costs: What happens to the profit maximizing P and Q when there are spillover costs? (Show on graph)   What is the allocatively efficient quantity? (Show on graph) RESULT: 1) Does the market achieve allocative efficiency when there are spillover costs?   2) Is there an OVERallocation of resources OR an UNDERallocation of resources?   3) Without the government would TOO MUCH or TOO LITTLE be produced?   ROLE OF GOVERNMENT: 1) When spillover costs are associated with a product like gasoline what should the government try to do to the QUANTITY -- INCREASE OR DECREASE it? 2) What are the three government policies to correct for spillover costs? a. b. c. 3) On your graph show the effect of an increase in the excise tax on gasoline 4) What happens to the quantity and allocative efficiency when the government taxes a product whose production has spillover costs?