Internalizing an externality:
A)is solely in the purview of governments.
B)entails a solution that provides incentives to private actors to act efficiently.
C)means exacerbating the external effect.
D)does not involve minimizing the impact of free riders.

Question

Quizplus · Accepted Answer

Internalizing an externality means that private actors take into account the full costs or benefits of their actions, instead of imposing costs on others (negative externality) or receiving benefits from others (positive externality). This can be achieved through providing incentives for private actors to act efficiently, such as imposing taxes or subsidies. Governments can play a role in creating and enforcing such incentives, but it is not solely their responsibility. Exacerbating the external effect would be the opposite of internalizing the externality. Minimizing the impact of free riders could be a part of the solution, but it is not the sole focus of internalizing an externality.

Internalizing an Externality