An externality is said to be internalized:
A)when individuals take external costs and benefits into account in their decision making.
B)when the Coase theorem is irrelevant or cannot be applied.
C)when individuals successfully petition the government to ban or restrict activities that generate negative externalities.
D)when individuals learn to adapt to negative externalities through introspection or internal acceptance of what are viewed as unchangeable facts of life.

Question

Quizplus · Accepted Answer

When individuals take external costs and benefits into account in their decision making, they are essentially considering the impact of their actions on third parties, and therefore internalizing the externality. This can be accomplished through various means such as pricing mechanisms, regulations or voluntary actions.

An Externality Is Said to Be Internalized