If the government taxes a firm that is generating an external cost,the price of the firm's product will ________ and output will ________.
A) increase; decrease
B) increase; increase
C) decrease; decrease
D) decrease; increase

Question

Quizplus · Accepted Answer

By taxing a firm that is generating an external cost, the cost of production for the firm increases, leading to an increase in the price of the firm's product. This increase in price will discourage consumers from consuming the product, thus reducing the overall output of the firm. Therefore, the correct answer is A) increase in price of the firm's product, and a decrease in the overall output.

If the Government Taxes a Firm That Is Generating an External