When the people creating an externality are made to pay for the externality by the government,the externality is said to be internalized.

Question

Quizplus · Accepted Answer

Internalizing an externality means that the costs or benefits of the externality are included in the decision-making process of the parties responsible for creating it. This is often achieved through government intervention, such as taxes, subsidies, or regulations that make the polluter or benefactor pay for the externality. By internalizing the externality, the market can better allocate resources and balance the costs and benefits of the activity in question.

When the People Creating an Externality Are Made to Pay