Suppose a product produces substantial spillover costs. If the government adopts a policy that forces producers to bear those costs:

Question

Quizplus · Accepted Answer

When the government forces producers to bear spillover costs, the equilibrium quantity of the product exchanged will fall due to an increase in the cost of producing the product. This will lead to a correction in the initial misallocation of resources. Additionally, the equilibrium price of the product will rise as producers pass on some of the increased costs to consumers. Therefore, all of the above options are true.

Suppose a Product Produces Substantial Spillover Costs