What is the primary effect of a negative externality on a market graph?

A negative externality occurs when a company’s actions harm others who are not involved in the transaction, like pollution from a factory affecting nearby residents. On a market graph, this is shown by a shift of the supply curve to the left, which means that the cost of production is higher when considering these harmful effects. This shift leads to a higher equilibrium price and a lower quantity of goods sold, making it more expensive for consumers and reducing the overall market activity. For example, if a factory pollutes a river, the costs of cleaning up that pollution are not included in the factory's production costs, leading to these market changes. In this way, negative externalities can lead to inefficient market outcomes that do not reflect the true costs of production.