Question

If a good that generates negative externalities were priced to take these negative externalities into account, then its Multiple Choice price would decrease and its quantity would increase. quantity would increase, but its price would remain constant. price would increase and its quantity would decrease. price would increase, but its quantity would remain constant.

Answer 1

Answer:

Price would increase, quantity would decrease.

Explanation:

Externalities are extra  benefits or harm to other un-involved parties, without any monetary exchange for the same. Extra beneficial are positive externalities (eg - education) , extra harmful effects are negative externalities (eg pollution).

Positive Externalities have extra social benefit apart from private benefit, Negative Externalities have extra social cost apart from private cost.

Private Markets work on private benefit & cost equalisation (ignoring extra social costs/ benefits). Involving extra social cost in the negative externalities accomodates the extra social harmful effect from that commodity, increases its price & decreases its quantity. This caters to discouraging its consumption, owing to the harmful effects. Eg Alcohol.

Similarly in case of positive externality : it would include extra social benefit (beneficial impacts), reduce price & increase quantity - to encourage the positive externality good consumption