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4. Explain and graphically that if a negative-externality producing company heeds the externality the output level...

4. Explain and graphically that if a negative-externality producing company heeds the externality the output level will be lower at a higher price.

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Explaination - When the production is carried out with negative externality , the output level is Q and price level is P. This is at the market equilibrium level of E. But when the producers tries to clear off the negative externality , the supply drops and shifts to left to form the social supply curve . Here the output falls to Q1 and price rises to P1. The new equilibrium is Socially optimal level . This can be seen in the graph above.

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