Use the following to answer question(s): Correcting for Market Failure: External Cost

-(Exhibit: Correcting for Market Failure: External Cost) Assume that there is an external cost involved, as illustrated in the exhibit.If the government sector forces the private sector firms to face the external cost, the supply curve _______ from _______ to ________ .
A) shifts right; S₂; S₁
B) shifts left; S₁; S₂
C) remains unchanged; S₁; S₁
D) remains unchanged; S₂; S₂

Question

Use the following to answer question(s): Correcting for Market Failure: External Cost
 
-(Exhibit: Correcting for Market Failure: External Cost) Assume that there is an external cost involved, as illustrated in the exhibit.If the government sector forces the private sector firms to face the external cost, the supply curve _______ from _______ to ________ .
A) shifts right; S₂; S₁ 
B) shifts left; S₁; S₂ 
C) remains unchanged; S₁; S₁ 
D) remains unchanged; S₂; S₂

Quizplus · Accepted Answer

When the government sector forces the private sector firms to face the external cost, the cost of production for the firms increases, causing the supply curve to shift to the left from S₁ to S₂. Therefore, option B is the best choice.

Use the Following to Answer Question(s): Correcting for Market Failure