Final answer:
The net increase to total surplus resulting from the correction or elimination of a negative externality happens when external costs are included in the market price, leading to a change in production and consumption behaviors that align more closely with society's true costs and benefits.
Step-by-step explanation:
The net increase to total surplus when a negative externality is corrected or eliminated results from aligning the private costs with the broader social costs of production or consumption. When producers and consumers account for these externality costs, they change their behavior in a way that reduces the externality. For example, a company that pollutes might reduce its emissions if it must pay for the environmental impact, leading to improved air quality and benefits for society that were not reflected in the market price. Similarly, if a business is creating a positive externality, like education or vaccination, by compensating them for these benefits, they have an incentive to increase the supply, which enhances societal welfare.
When negative externalities are internalized through regulations, taxes, or market-based approaches, the result is a more efficient market outcome, where the equilibrium price and quantity reflect the true costs and benefits to society. Markets that previously under- or over-produced goods or services due to externalities can move closer to the socially optimal level of production, thereby increasing total surplus, which is the sum of consumer and producer surplus.