If a product that generates a negative externality is priced so that the polluters bear the cost of the externality, the price of the product will likely:

Question

Quizplus · Accepted Answer

If the price of a product that generates a negative externality is increased to reflect the cost of the externality, the cost of production increases, and the supply curve shifts leftward. This results in a higher price and lower output of the product. This reduction in output is desirable as it helps to reduce the negative externality. Therefore, choice B is the best answer.

If a Product That Generates a Negative Externality Is Priced