Suppose a company is forced to pay for the externality caused by its production. As a result, it chooses to supply less. What kind of externality does this company create?
A)Positive
B)Negative
C)Network
D)Social

Question

Quizplus · Accepted Answer

The company creates a negative externality, as it is causing harm or cost to a third party (society or environment) not involved in the economic transaction, which leads to a reduction in its supply when it is forced to internalize those external costs.

Suppose a Company Is Forced to Pay for the Externality