Under what circumstances will people or firms "internalize externalities"?
A) whenever spillover costs and/or benefits are created
B) whenever the private marginal costs and private marginal benefits are calculated more carefully
C) whenever less consideration is given to others
D) whenever responsibility for the consequences of actions is assigned to the acting party.

Question

Quizplus · Accepted Answer

Internalizing externalities means taking into account the costs or benefits of actions that affect others and incorporating them into decision-making. This can happen when those responsible for producing the externalities are held accountable for their actions and bear the costs or receive the benefits themselves. Option D explains this concept by stating that when responsibility is assigned to the acting party, they are more likely to internalize the externality.

Under What Circumstances Will People or Firms "Internalize Externalities