A Shift from S1 to S2 Reflects the Change That

question 69

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 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

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Definitions:

Equilibrium

A state of balance where demand and supply in a market are equal, leading to a stable price.

Creative Destruction

A concept in economics that refers to the process by which new innovations trigger the demise of older technologies and economic structures, leading to economic evolution.

Dominant Firms

Companies that hold a significant share of market power in their industry, often able to influence market conditions and prices.

New Firms

New firms are businesses that have been recently established, entering the marketplace with the intention to offer goods or services.