When a Producer Operates in a Market Characterised by Negative

question 45

Multiple Choice

When a producer operates in a market characterised by negative production externalities, a tax that forces them to internalise the externality will:

• A)give sellers the incentive to take account of the external effects of their actions
• B)have an offsetting effect that reduces the producer's private production costs
• C)increase the amount of the commodity exchanged in market equilibrium
• D)restrict the producer's ability to take the costs of the externality into account when deciding how much to supply