It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river
ﬁnd that they must clean up the river's water before it ﬂows through their equipment.
If the government intervenes and corrects the externality in the situation described above, we
Would expect
A) the output of the paper mills to increase.
B) the price of paper from the mills to decrease.
C) production of the hydroelectric power plants to decrease.
D) production in the paper mills to decrease.

Question

Quizplus · Accepted Answer

If the government intervenes and corrects the externality, the paper mills will no longer be able to discharge waste products into the Layzee River. This means that they will need to find alternative ways to dispose of their waste, which may be more expensive or may require them to invest in new technology. As a result, production in the paper mills may decrease.

It Is the Custom for Paper Mills Located Alongside the Layzee