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. Externalities exist in both panels. After correcting for the externalities the prices should be
Definitions:
Club Good
A type of good that is excludable but non-rivalrous, meaning those who do not pay cannot access it, but one person's use does not diminish availability for others.
Common Resource
A resource like air or water that is not owned by anyone, is available for everyone to use, and is rivalrous but non-excludable.
Pennsylvania Turnpike
A toll highway in Pennsylvania, significant for its role in transportation infrastructure in the United States.
Free Rider
A person who enjoys the advantages of goods, services, or resources without bearing the expenses associated with them.
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