When negative externalities exist in a market,if it is internalized:
A)those who interact in the market will lose surplus.
B)those who interact in the market will gain surplus.
C)those who do not interact in the market,but are affected by the externality,will lose surplus.
D)those who do not interact in the market,but are affected by the externality,will gain surplus.

Question

Quizplus · Accepted Answer

When negative externalities exist in a market and are internalized, those who interact in the market will lose surplus. This is because internalizing the negative externality would increase the cost of production for the producer which in turn reduces their profit margin. The increased cost of production would also result in higher prices for consumers, reducing their consumer surplus.

When Negative Externalities Exist in a Market,if It Is Internalized