If a good that generates negative externalities were priced to take these negative externalities into account, then its

A) price would decrease and its quantity would increase.
B) quantity would increase, but its price would remain constant.
C) price would increase and its quantity would decrease.
D) price would increase, but its quantity would remain constant.

Question

Mary Grace Tucker · Accepted Answer

Final Answer : C, Explanation :  When a good generates negative externalities, its true cost to society is higher than its market price, as the negative impacts are borne by third parties. If the good were priced to take these negative externalities into account, its price would increase to reflect the true cost to society. This would in turn decrease the quantity demanded of the good, as consumers would be less willing to pay the higher price. Therefore, the correct choice is C, as the price would increase and the quantity would decrease.

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