What happens in a supply and demand diagram of the pesticide market when a corrective tax is used to solve a negative externality problem?

Question

Quizplus · Accepted Answer

When a corrective tax is imposed on the pesticide market to solve a negative externality problem, the tax makes the firms internalize the external cost. The tax shifts the supply curve upward by the amount of the tax. The new supply curve becomes the marginal social cost curve because the firms are now taking into account the external cost. The intersection of the new supply curve and the demand curve gives the new equilibrium quantity and price. As a result, the quantity produced is reduced, and the price paid by consumers is higher.

What Happens in a Supply and Demand Diagram of the Pesticide