Which of the following statements is correct?
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

Internalizing a negative externality means that the industry takes into account the negative effects that its production has on society and tries to reduce them. This can be accomplished through measures such as implementing pollution control technology or paying a tax on the negative externalities produced. As a result of these measures, the industry's costs of production will increase, which will cause a decrease in the quantity supplied to the market. Since the costs of production have increased, the price of the good produced will also increase in order for the industry to maintain profitability. Therefore, both the quantity supplied and the price of the good will decrease as a result of internalizing a negative externality.

Which of the Following Statements Is Correct