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

Supply curve will shift left or right if the decisions taken increase or decrease the cost of production.

Step-by-step solution

Step1. Introduction

Supply curve is concerned from the producers' point of view. It will change, i.e. shift left or right according to the cost of production they face.

The cost of production change when and if laws are passed affecting the firms.

Step2. Explanation

(a) Supply curve will shift left as the fine paid shall increase the burden on the cost of production.

(b) Supply curve will shift left as the companies sued will have to reach a settlement and pay fine, adding burden to the cost of production.

(c) Supply curve stays the same as the firm need not incur any extra additional cost to treat the polluted air.

(d) Supply curve shifts left, as the firms are required to clean up the damage, leading to extra expenses, hence increasing the cost of production.