Internalizing cost of pollution By requiring car producers to install emission control devices on cars, the government forces these producers to internalize some of the external costs of auto pollution. This will lead to the equilibrium price of cars: Velg ett alternativ: increasing and the quantity decreasing. increasing and the quantity increasing. decreasing and the quantity decreasing. decreasing and the quantity increasing.
The correct answer and explanation is :
Correct Answer: increasing and the quantity decreasing.
Explanation (Approx. 300 words):
When the government mandates that car producers install emission control devices (such as catalytic converters), it is effectively forcing them to internalize some of the external costs of pollution. Normally, these external costs — such as air pollution, public health effects, and environmental damage — are not reflected in the market price of cars. Instead, society at large bears these costs.
By requiring emission control devices, the government increases the production cost of each vehicle. This shifts the supply curve to the left (or upward) because at every price level, fewer cars are now supplied due to higher costs. As a result, the market equilibrium price rises, and the quantity of cars sold falls.
This change reflects a move toward greater economic efficiency. When externalities are present, free markets tend to overproduce goods (in this case, cars) because the full social cost is not considered. By making producers internalize pollution costs, the market output is reduced to a more socially optimal level — fewer cars, but ones that are cleaner and less harmful to the environment.
The new, higher price better reflects the true social cost of producing and consuming cars. Consumers now face a price that includes at least some of the environmental impact, potentially influencing them to drive less, carpool, or seek cleaner alternatives like electric vehicles or public transit.
In summary, requiring emission control devices increases production costs, causing the price of cars to increase and the quantity sold to decrease. This outcome better aligns private incentives with social well-being by reducing the negative externalities associated with car use.