Question

If the government decides to adopt a carbon tax, the price of goods whose production generates carbon emissions will __________ and the quantity produced will __________.

Answer 1

Answer:

The correct answer is letter "C": increase; remain unchanged.

Explanation:

Externalities are the effect by which third parties are affected by the actions of others even if the third party does not have to do with operation s of the entity causing the harm. The typical example of an externality is related to companies' pollution. Governments are more than likely to impose taxes on such organizations. Not to affect their profits and to keep their production at the same level, those companies raise the price of their products affecting the consumer eventually.  

Then, imposing levies on carbon will rise the price of carbon goods keeping the quantity produced at the same rate.