Allemande135 Posted June 5, 2018 Report Share Posted June 5, 2018 What kind of effect does legislation have on a negative externality of consumption diagram? Do production costs increase and thus supply shifts to the left? Or does demand decrease? Or does it depend on the context and both could happen? Reply Link to post Share on other sites More sharing options...
Sope Posted June 5, 2018 Report Share Posted June 5, 2018 Legislation shifts the demand curve (MPB) to the left, hence closing the externality and moving it closer to the MSB. The supply curve stays the same. As for context, you can talk about that for the evaluation of legislation as an effective policy response and include stuff like difficulties of compliance and the fact that it might only partially eliminate the externality Hope that helps 1 Reply Link to post Share on other sites More sharing options...
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