Question

An individual or a firm can internalize an externality by​ ___________. A. disputing that an externality exists. B. doubling the size of the externality. C. paying the cost of the externality. D. ignoring the externality.

Answer 1

Answer:

C. paying the cost of the externality

Explanation:

An externality is defined as cost or benefit that is generated from the activities of a producer, but it is not financially incurred by the producer.

It can be positive or negative externality.

For example if we have a street light the effect on the society does not affect the producer cost wise so it is an externality to him.

When a producer now bears the cost of an externality he is internalizing the externality.

For example if a company polluted the environment with a byproduct of its production process this is a negative externality.

They can internalise it by cleaning up the pollutant from the society.