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 positive externality exists that has not been corrected. Price and quantity will be
Definitions:
Catastrophe Bonds
Insurance-linked securities issued by insurance companies to transfer major risks from the issuer to investors, typically used for natural disaster risks.
Asset-Backed Bonds
Bonds that are secured by a pool of assets, such as loans or receivables, which generate the cash flow to pay bondholders.
TIPS
Treasury Inflation-Protected Securities, a type of U.S. Treasury bond designed to help investors protect against inflation.
Maturity
The date on which the principal amount of a financial instrument, such as a bond or loan, becomes due and is repaid to the investor.
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