Altering incentives so that people take account of the external effects of their actions
A) is called internalizing the externality.
B) can be done by imposing a corrective tax.
C) is the role of government in markets with externalities.
D) all of the above.

Question

Quizplus · Accepted Answer

All of the above statements are correct. Altering incentives so that people take account of the external effects of their actions is known as internalizing the externality. This can be achieved by imposing a corrective tax to make the producers pay for the external cost they impose on society. The government often plays a role in regulating markets with externalities to ensure that the producers and consumers take into account the full cost and benefits of their actions, and mitigate the negative externalities that harm the society.

Altering Incentives So That People Take Account of the External