In order to correct the problems associated with external costs,

Question

Quizplus · Accepted Answer

Option A suggests changing the signals given to the economy so that decision-makers will take into account all the costs of their actions. This would mean that the costs associated with externalities such as pollution would be factored into the cost of production, and firms would have an incentive to reduce pollution as it would make their production costs more expensive. This mechanism is known as internalizing the external costs and has been shown to be an effective policy tool in correcting the problems associated with externalities. Options B and D are not practical solutions as they require excessive government intervention and could potentially harm the economy. Option C addresses only one aspect of the problem and does not fully address the root cause of externalities.

In Order to Correct the Problems Associated with External Costs