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2 July, 19:44

Which of the following statements is correct? a. Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced. b. Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced. c. Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced. d. Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced.

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  1. 2 July, 21:47
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    The answer is (A) Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced.

    Explanation:

    A negative externality is commonly defined as the cost that a third party (also known as consumers) must pay when they chose to be involved in a transaction. This cost is not directly incurred - rather, it is a side effect of the transaction the consumers chose to engage in. An example would be - by choosing to purchase gasoline, the consumers create an additional cost of air pollution when using the product. When an economic firm chose to internalize a negative externality - they would choose to decrease the production of the product, and the price of the goods.
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