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 existed but has 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 existed but has 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

The shift from S₁ to S₂ indicates that the negative externality has been corrected. This means that the supply curve has shifted leftward, resulting in a decrease in quantity and an increase in price. The shift from D₁ to D₂ indicates the inclusion of a positive externality. This means that the demand curve has shifted rightward, resulting in an increase in quantity and an increase in price. The intersection of the corrected supply curve (S₂) and the new demand curve (D₂) is point Q₂, with price P₂ and quantity Q₂. Therefore, the correct answer is B, P₂ and Q₂.

A Shift from S₁ to S₂ Reflects the Change That