What does internalizing an externality refer to
A)making buyers and sellers take into account the external effects of their actions
B)making certain that all transactions benefit only buyers and sellers
C)making certain government does not disrupt the internal workings of the market
D)making buyers pay the full price for the products they purchase

Question

Quizplus · Accepted Answer

Internalizing an externality refers to making buyers and sellers take into account the external effects of their actions. This means that the parties involved in a transaction must consider the impact of their choices on third parties and adjust their behavior accordingly. This can be accomplished through measures such as taxes or regulations that incentivize actors to internalize the external costs or benefits of their actions. By doing so, market outcomes can be improved and social welfare enhanced.

What Does Internalizing an Externality Refer to