A Shift from S₁ to S₂ Reflects the Change That $P _ { 1 }$

question 149

Multiple Choice

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

• A) \(P _ { 1 }\) and \(\mathrm { P } _ { 3 }\) .
• B) \(P _ { 1 }\) and \(\mathrm { P } _ { 4 }\) .
• C) \(P _ { 2 }\) and \(\mathrm { P } _ { 4 }\) .
• D) \(P _ { 2 }\) and \(\mathrm { P } _ { 3 }\) .

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Definitions:

Productive Efficiency

A situation where an economy or firm produces goods at the lowest possible cost, utilizing all its resources efficiently without waste.

Monopolistic Competition

A market framework where multiple companies distribute products that are akin to each other but not copies, thus granting them a degree of power within the market.

Excess Capacity

A situation where a company or economy can produce more goods or services than currently demanded, often leading to inefficiency and lower prices.

Excess Capacity

A scenario where a firm or industry has unused production resources, leading to inefficiencies and lowered profitability.