Which of the following statements about internalising a negative production externality is most correct?
A) internalising a negative production externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced
B) internalising a negative production externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced
C) internalising a negative production externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced
D) internalising a negative production 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

Internalizing a negative production externality involves making the polluting firm pay for the damage caused by its production. This is typically done through regulatory policies, such as taxes or emissions permits. By increasing the cost of production, an industry is likely to decrease the quantity it supplies to the market. This is because the higher production costs make it less profitable for firms to produce the good, and some may exit the market altogether. This decrease in supply will lead to an increase in the price of the good produced. Therefore, option B is the correct answer.

Which of the Following Statements About Internalising a Negative Production