Price will increase and output will decrease once government makes a firm
A) internalize a negative externality.
B) externalize a negative externality.
C) internalize a positive externality.
D) externalize a positive externality.

Question

Quizplus · Accepted Answer

When a government makes a firm internalize a negative externality, it means the firm must take into account the external costs it imposes on society (e.g., pollution) in its production decisions. This typically leads to higher production costs for the firm, which are often passed on to consumers in the form of higher prices. Additionally, the firm may reduce its output to minimize the now-internalized costs, leading to a decrease in output.

Price Will Increase and Output Will Decrease Once Government Makes