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

Question

Quizplus · Accepted Answer

The statement is incorrect. When the government imposes a tax equal to the external cost of producing a product that causes pollution, the government is said to internalize the externality. Externalizing the externality would mean that the cost is passed on to society instead of being absorbed by the firm producing the pollution.

When the Government Imposes a Tax Equal to the External