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1. Externalities - Definition and examples An externality arises when a firm or person engages in an activity that affects the well-being of a third
1. Externalities - Definition and examplesexternality.The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good.Shift one or both of the curves to reflect the presence of the externality. If the social cost of producing the good is not equal to the private cost, then you should shift the supply curve to reflect the social costs of producing the good; similarly, if the social value of producing the good is not equal to the private value, then you should shift the demand curve to reflect the social value of consuming the good.than the socially optimal quantity.Which of the following generate the type of externality previously described? Check all that apply.
