When a negative externality is internalized in a market,total surplus:
A)increases,but producer and consumer surplus both fall.
B)decreases,because producer and consumer surplus both fall.
C)increases,because producer surplus increases.
D)decreases,because consumer surplus falls more than producer surplus increases.

Question

Quizplus · Accepted Answer

When a negative externality is internalized in a market, the cost of the externality is reflected in the market price, causing the quantity demanded to decrease and the quantity supplied to increase. This results in a decrease in consumer surplus and producer surplus. However, total surplus increases because the cost of the externality has been accounted for and the market is now operating more efficiently.

When a Negative Externality Is Internalized in a Market,total Surplus