Refer to the above supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production?
A) Supply would increase
B) Demand would decrease
C) Supply would decrease
D) Price would increase

Question

Refer to the above supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production?
A) Supply would increase 
B) Demand would decrease 
C) Supply would decrease 
D) Price would increase

Quizplus · Accepted Answer

When the government taxes producers of a product due to negative externalities in production, it increases the cost of production for the producers. As a result, the supply curve will shift to the left, indicating a decrease in supply. The decrease in supply will lead to an increase in price and decrease in quantity demanded. Therefore, option C is the correct answer, and options A, B, and D are incorrect.

Refer to the Above Supply and Demand Graph of Product