Narrbegin Exhibit 10.2 Carbon emissions as an externality
-In Exhibit 10.2, which of the following is likely to be true?

Question

Narrbegin Exhibit 10.2 Carbon emissions as an externality  
-In Exhibit 10.2, which of the following is likely to be true?

Quizplus · Accepted Answer

If firms are required to purchase emissions permits, the supply curve 'Supply 1' will shift to the left to supply curve 'Supply 2'. The reason behind this is that purchasing permits will increase the cost of production for firms, leading to a decrease in supply at any given price. Option A and B are incorrect because the exhibit shows that carbon emissions are considered an externality, which means they are not currently included in the cost of production for carbon emitting firms. Option C is incorrect because the exhibit does not show the impact of tax on the supply curve.