Question

by imposing a tax on the production of electricity equal to the cost of acid rain, the government will cause electric utilities to internalize the externality. as a consequence, the cost of the acid rain will become a

a. private cost borne by the utilities, and the supply curve for electricity will shift down.
b. social cost borne by the public, and the demand curve for electricity will shift down.
c. private cost borne by the utilities, and the supply curve for electricity will shift up.
d. social cost borne by the public, and the demand curve for electricity will shift up.

Explanation:

When the government makes electric utilities internalize the externality (cost of acid - rain) by imposing a tax, this cost becomes a private cost for the utilities. As their costs increase, they will supply less at each price level, causing the supply curve to shift up.

Answer:

C. private cost borne by the utilities, and the supply curve for electricity will shift up.