When the government imposes a tax equal to the external cost of producing a product that causes pollution, the government is said to externalize the externality.

Question

Quizplus · Accepted Answer

When the government imposes a tax equal to the external cost, it is internalizing the externality, not externalizing it. This means the cost of the negative externality is included in the price of the product.

When the Government Imposes a Tax Equal to the External