When producers operate in a market characterized by negative externalities,what will a tax do that forces them to internalize the externality
A)It will give sellers an economic incentive to account for the external effects of their actions.
B)It will have an offsetting effect that reduces the producers' private production costs.
C)It will increase the amount of the commodity exchanged in market equilibrium.
D)It will dictate to the producer how much is an acceptable level of the negative externality

Question

Quizplus · Accepted Answer

A tax will increase the cost of production for the producer, which will incentivize them to reduce their production of the good that is causing the negative externality. This will help to internalize the external costs of their production, as they will now have to consider these costs when making their production decisions. By increasing the cost of production, the tax encourages the producer to reduce the amount of the good they produce, which will help to reduce the negative externalities associated with the production of that good.

When Producers Operate in a Market Characterized by Negative Externalities,what