It is the custom for paper mills located alongside the layzee river to discharge waste products into the river. as a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment.
if the government intervenes and corrects the externality in the situation described above, we would expect:
a) the demand for the output from the hydroelectric power plants to decrease
b) the supply of the output from the hydroelectric power plants to decrease
c) the demand for the output from the hydroelectric power plants to increase
d) the supply of the output from the hydroelectric power plants to increase

D) The supply of the output from the hydroelectric power plants to increase

Explanation:

The externality here is a negative one where the hydroelectric plants has to bear the cost of pollution as the paper mills operates.

Correcting means to make the paper mills pay for the external costs of their production and compensate the power plant for the additional cost that incurred as they have to clean up the water.

As the cost of production reduces, the power plant will be more willing to supply electricity at similar prices, ie. their supply curve will shift to the right. It will intersect with the demand curve of the consumers at a point with higher quantity (and maybe lower price)

In other words, they will supply more electricity.

the answer is "b.the increased supply will create a surplus. "

the essential thought behind price controls is straightforward - utilize the power of law to modify the equilibrium of a market. for instance, the legislature may choose that the steel business needs to survive, and in this way pass a law to set a value floor on steel. this implies all steel sold must offer at or over the floor value, which must be set over the equilibrium cost for it to have any impact. the switch could likewise happen - the administration can choose that steel is excessively costly and set a value roof underneath its equilibrium value, with the goal that all steel must be sold at or beneath that ceiling.