What happens if we internalize a negative externality
A)Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced.
B)Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced.
C)Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced.
D)Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced.

Question

Quizplus · Accepted Answer

When a negative externality is internalized, it means that the producer of the good is now responsible for the cost of the externality. This increases the producer's cost of production and reduces their profits, which leads to a decrease in the quantity supplied to the market. This decrease in supply will lead to an increase in the price of the good produced. Therefore, the correct option is B, which states that the industry will decrease the quantity it supplies to the market and increase the price of the good produced.

What Happens If We Internalize a Negative Externality