Question

Identify whether the market supply curve will shift right or left or will stay the same for the following:

a. Firms in an industry are required to pay a fine for their carbon dioxide emissions.

b. Companies are sued for polluting the water in a river.

c. Power plants in a specific city are not required to address the impact of their air quality emissions.

d. Companies that use fracking to remove oil and gas from rock are required to clean up the damage.

Short answer

(a) The supply will shift to the left.

(b) The supply will shift to the left.

(c) The supply stays the same.

(d) The supply will shift to the left.

Step-by-step solution

Market supply curve : 

The market supply diagram is a curve which shows that each market participant is interested in producing how much of a product at a particular price.

(a) Explanation :

If firms are required to pay a higher penalty for generating carbon dioxide, price will rise, causing supply to go out of balance, and demand to fall.

If the good is a necessary item and the firm pays the extra fine out of their own pocket, there will be no change in supply; however, in a perfect competition market, the firm will always pass on the extra fine to the customers who pay it, resulting in a drop in demand and supply that makes the supply curve move to the left.

(b) Explanation :

Companies that are penalized for polluting the river will have a limited supply of the item.

If a negative externality occurs, resulting in firms paying a fine and polluting the river, consumers will want less of the good, resulting in a shortage of the item that makes the supply curve move to the left.

(c) Explanation : 

If a power plant in a certain city is not required to monitor or handle air quality emissions, the producer's market supply will remain unchanged, and the consumer's demand would remain unchanged. So, the supply curve remains constant.

(d) Explanation : 

The supply would shift to the left if firms used fracking to extract oil and gas from the rock and were compelled to clean up the mess.

If the price is low and the producer has absorbed it, rather than passing it on, the supply will move to the left.