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 above figures. Prior to the shift of the curves, which panel and which curve involve the existence of negative externality?
A) Panel 1 and S1
B) Panel 1 and S2
C) Panel 2 and D1
D) Panel 2 and D2

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 above figures. Prior to the shift of the curves, which panel and which curve involve the existence of negative externality?
A) Panel 1 and S1 
B) Panel 1 and S2 
C) Panel 2 and D1 
D) Panel 2 and D2

Quizplus · Accepted Answer

Panel 1 involves the existence of a negative externality, as demonstrated by the shift from S1 to S2. This indicates that the cost to society is greater than the cost to the producer or consumer, and the market is not allocating resources efficiently.

A Shift from S1 to S2 Reflects the Change That