If a negative externality is to be internalized to the decision maker, the:
A) producers' marginal costs should be increased by an amount equal to the marginal cost to those outside the trade that results from production of the good.
B) producers' marginal costs should be reduced by an amount equal to the marginal cost to those outside the trade that results from production of the good.
C) consumer of the good should receive a subsidy equal to the marginal cost to those outside the trade that results from production of the good.
D) consumer of the good should pay a tax equal to the marginal benefit to those outside the trade that results from consuming the good.

Question

Quizplus · Accepted Answer

To internalize a negative externality, the producers' marginal costs should be increased by an amount equal to the marginal cost imposed on others, aligning private costs with social costs.

If a Negative Externality Is to Be Internalized to the Decision