A Shift from S1 to S2 Reflects the Change That

question 14

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) P1 and P3.
• B) P1 and P4.
• C) P2 and P4.
• D) P2 and P3.

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