Question

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment.
If the government intervenes and corrects the externality in the situation described above, we would expect:

The demand for the output from the hydroelectric power plants to decrease
The supply of the output from the hydroelectric power plants to decrease
The demand for the output from the hydroelectric power plants to increase
The supply of the output from the hydroelectric power plants to increase

Answer 1

Answer:

Option (4) is correct.

Explanation:

If government intervenes, we would expect that less amount of waste material discharge into the rivers because of the cost associated with the discharge of waste material.

So, it will save the time, energy and resources of the  operators of hydroelectric power-generating plants from cleaning the water and hence, this will increase the output of hydroelectric power-generating plants.

Therefore, this will increase the supply of the output produced by the hydroelectric power plants.