A shift from S1 to S2 reflects the change that happens when a negative externality is taken into account. A shift from D1 to D2 reflects the change that happens when a positive externality is taken into account.
-Refer to the above figures. A negative externality exists that has not been corrected. Price and quantity will be
A) P1 and Q1.
B) P2 and Q2.
C) P3 and Q3.
D) P4 and Q4.

Question

A shift from S1 to S2 reflects the change that happens when a negative externality is taken into account. A shift from D1 to D2 reflects the change that happens when a positive externality is taken into account.
-Refer to the above figures. A negative externality exists that has not been corrected. Price and quantity will be
A) P1 and Q1. 
B) P2 and Q2. 
C) P3 and Q3. 
D) P4 and Q4.

Quizplus · Accepted Answer

A negative externality leads to overproduction, so the market equilibrium without correction is at a higher quantity and lower price than the socially optimal level, which is represented by P1 and Q1.

A Shift from S1 to S2 Reflects the Change That