To internalise a negative externality, an appropriate public policy response would be to

Question

Quizplus · Accepted Answer

Taxing the good that creates negative externalities would increase the cost of production and consumption, thereby reducing demand and consumption. This would incentivise producers and consumers to internalise the negative externality by reducing their consumption of the good or implementing measures to reduce the negative impact. It also generates revenue for the government which can be used for addressing the negative externality. Options A and D would not necessarily address the negative externality, and option B would have a significant impact on the economy by banning several goods that might be essential.

To Internalise a Negative Externality, an Appropriate Public Policy Response