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 exists that has not been corrected. Price and quantity will be
Definitions:
Aggregate Demand Curve
A graphical representation that shows the total quantity of goods and services that all buyers in an economy (including consumers, businesses, and government) are willing and able to purchase at different price levels.
Nominal Income
The amount of income earned in current prices, without adjusting for inflation or deflation, representing the face value of wages, rents, interest, and profits.
Aggregate Supply Curve
A graphical representation showing the relationship between the overall price level and the total output produced by an economy.
Output Producers
Businesses or individuals that create goods or services for consumption.
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