Final answer:
If the government forces a paper plant to internalize the negative externality of pollution, the supply curve for paper would shift to the left, reflecting higher production costs and a decrease in the quantity supplied at any given price.
Step-by-step explanation:
Pollution is recognized as a negative externality, which occurs when production or consumption of a good or service imposes costs on third parties that are not reflected in the market price. When a paper plant produces water pollution, it creates external costs that society has to pay for, such as environmental damage and health issues. Governments can intervene to force the company to internalize these externalities, typically by imposing pollution taxes or regulation, thereby making the production process reflect the true social cost.
When the government forces a paper plant to internalize the negative externality, the supply curve for paper would shift. This is because the cost of production for the paper plant now includes the previously external costs of pollution. Consequently, this would raise the costs for the paper plant and decrease the quantity of paper supplied at any given price. The correct answer to the question is: c) the supply curve for paper would shift to the left. This reflects a decrease in supply, as the new supply curve accounts for the higher production costs after internalizing the externality.