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Ok. I guess you're expecting to see the overhang right at the lip of the rim. Section width measures the tread, not where it mounts to the wheel. The tread most definitely overhangs 0.8" beyond each side of the rim, and that's when the wheels aren't even mounted to the car. However, depending on your inflation pressure, your sidewall will most likely stick out even farther than that. This is especially noticable when you look at the lower portion of a mounted tire. The weight of the car will compress the sidewall, making it bulge at the bottom even more than at the top.
Since you know the math is correct, yet claim that it isn't accurate, just grab a caliper (the measuring kind, not the braking kind). You'll find that the sidewall on the bottom side of the tire of a mounted wheel will be about 8.6" wide (for a 205/50/16). I've done it.
Oh, and the larger diameter makes your acceleration slower and should in fact INCREASE your top speed.
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