-A negative externality such as air pollution created as a by-product of a firm's production activities is best represented by which panel in Exhibit N-1 on the previous page (whereS and D depict the initial private market outcome)?
A) Panel 1
B) Panel 2
C) Panel 3
D) Panel 4
E) Panel 5

Question

-A negative externality such as air pollution created as a by-product of a firm's production activities is best represented by which panel in Exhibit N-1 on the previous page (whereS and D depict the initial private market outcome)?
A) Panel 1 
B) Panel 2 
C) Panel 3 
D) Panel 4 
E) Panel 5

Quizplus · Accepted Answer

Negative externalities like air pollution cause the social cost of production to be higher than the private cost. Panel 3 typically shows a situation where the supply curve (representing private cost) needs to shift leftward (or upward in a standard supply-demand graph) to reflect the higher social cost, indicating the presence of a negative externality.

-A Negative Externality Such as Air Pollution Created as a By-Product