When Producers Operate in a Market Characterized by Negative Externalities

question 307

Multiple Choice

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will

• A)give sellers the incentive to account for the external effects of their actions.
• B)increase demand.
• C)increase the amount of the commodity exchanged in market equilibrium.
• D)restrict the producers' ability to take the costs of the externality into account when deciding how much to supply.