Externalities Graph
On the graph to the right you can see that, usually, where supply and demand cross, you get your most efficient outcome. However, when taking externalities into account, where supply equals demand won't always be the most optimal. In fact, it almost never will be, and realizing the effects this has on price and quantity is essential for the AP exam.
Deadweight Loss
Deadweight loss is generated when a negative externality must be controlled and works similarly to the tax shown in the graph to the left. More on how they relate in the "Relation" tab.