Final answer:
In the presence of a negative externality, such as pollution from trumpet playing, accounting for the externality affects the equilibrium price and quantity. The supply and demand curves must be adjusted to reflect the social costs. This leads to a higher equilibrium price and a lower equilibrium quantity.
Step-by-step explanation:
Pollution is a negative externality that imposes external costs on society. In the case of the firm playing trumpets on the streets, the negative externality would be the noise pollution caused by the trumpet playing. When only private costs are accounted for, the equilibrium price and quantity are determined by the intersection of the private supply and demand curves.
However, when social costs are accounted for, the equilibrium price and quantity are determined by the intersection of the social supply and demand curves. Accounting for the externality shifts the supply curve upward, resulting in a higher equilibrium price and a lower equilibrium quantity.