If the external costs of carbon emissions were included in the industry supply curve:

Question

Quizplus · Accepted Answer

The external cost of carbon emissions represents a negative externality, meaning that the social cost of production is higher than the private cost borne by the producers. If this externality were included in the industry supply curve, the true cost of production would be higher than what is reflected in the market price. As a result, the supply curve would shift to the left, causing a higher equilibrium price and a lower equilibrium quantity. This would incentivize producers to reduce their output level, as the marginal cost of production including the external cost would be higher than the market price.

If the External Costs of Carbon Emissions Were Included in the Industry