A negative externality is internalized when __________ until the socially optimum level of production is obtained.
A)supply shifts to the left
B)supply shifts to the right
C)demand shifts to the right
D)demand and supply both shift to the right

Question

Quizplus · Accepted Answer

When a negative externality is internalized, the cost of production will increase for the firm producing the good, causing the supply curve to shift to the left. The increased cost is due to the fact that the firm is no longer able to pass on the full cost of production to society, as they must now also account for the negative effects on third parties. As the supply curve shifts to the left, the price of the good will increase, causing demand to decrease. As demand decreases, the market will adjust until the socially optimum level of production is obtained, where the marginal cost of production is equal to the marginal social cost.

A Negative Externality Is Internalized When __________ Until the Socially