Asked by Ariah Scales on Jul 17, 2024
Verified
Once a firm is made to internalize a negative externality, the price will
A) increase and output will decrease.
B) increase and output will increase.
C) decrease and output will decrease.
D) decrease and output will increase.
Negative Externality
An external effect of a product or activity that imposes a negative impact on a third party or the environment.
Internalize
The process of taking into account the external effects of economic actions, such as externalities, within the decision-making process.
- Examine the effects of taxation and subsidies on corporate conduct and outcomes in the marketplace.
- Describe the process by which externalities cause a misallocation of resources when there is no governmental interference.
Verified Answer
KA
Katherin AfanadorJul 21, 2024
Final Answer :
A
Explanation :
When a firm is made to internalize a negative externality, it means the firm now bears the external costs that previously were not accounted for in its production costs. This leads to an increase in the firm's costs, which typically results in higher prices for consumers and a reduction in the quantity of goods produced, as the firm adjusts to the new cost structure.
Learning Objectives
- Examine the effects of taxation and subsidies on corporate conduct and outcomes in the marketplace.
- Describe the process by which externalities cause a misallocation of resources when there is no governmental interference.