Once again we'll adapt a good old-fashioned supply and demand diagram by making the new distinction between private and social benefits. On the horizontal axis we have the quantity demanded -- in this case, the number of riders on the public transportation service. On the vertical axis we have marginal benefits per rider. Here's the picture:
The difference between MSB, marginal social benefit, and MPB, marginal private benefit, is the external benefit of street decongestion -- faster car trips to work and less gasoline burned, and less wear and tear on cars. However, the demand for public transportation is the marginal private benefit curve, since self-interested riders do not the external benefits into account when they decide to take the public transportation service rather than taking their cars.
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