Question

A series of events takes place when an externality is internalized. Place the events in logical order.

Answer 1

Here are the sequence of events that leads to the internalization of an externality:

• Widespread use of residential woodstoves affects air quality
• New regulations impose emission limits on all new woodstoves.
• Makers update woodstove designs
• The costs of implementing the design changes are partly borne by makers and partly passed on to consumers
• Air quality improves as the new woodstoves come into use.

What is an externality?

Externality is when the activities of economic agents affects those not engaged in the economic activity. Externality can be positive or negative.

Negative externality is when the activities of economic agents constitute harm to third parties. Positive externality is when the activities of economic agents constitute  a benefit to third parties.

Here are the events:

New regulations impose emission limits on all new woodstoves. Widespread use of residential woodstoves affects air quality. Air quality improves as the new woodstoves come into use. he costs of implementing the design changes are partly borne by makers and partly passed on to consumers. Makers update woodstove designs

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