If government regulation forces firms in an industry to internalize the externality,then we can expect the equilibrium price of the good to ________ and the equilibrium quantity to ________.

Question

Quizplus · Accepted Answer

When firms are forced to internalize an externality, it means they must bear the previously external costs themselves, such as pollution mitigation. This typically leads to higher production costs, resulting in an increase in the price of the good. However, the higher price tends to reduce demand, leading to a decrease in the equilibrium quantity.

If Government Regulation Forces Firms in an Industry to Internalize