To internalize a negative externality, _____.
A)a producer's costs should be reduced by an amount equal to the external cost resulting from the production of a good
B)a producer's costs should be increased by an amount equal to the external cost resulting from the production of a good
C)a producer should receive a subsidy equal to the external cost resulting from the production of a good
D)the government should take over the production of a good
E)the government should sell a good only to those who are willing to bear the burden of the externality in the form of high prices

Question

Quizplus · Accepted Answer

In order to internalize a negative externality, a producer's costs should be increased by an amount equal to the external cost resulting from the production of a good, as this would discourage the production of goods with negative externalities by making it more costly for producers. A subsidy (choice C) would encourage production and worsen the negative externality, while reducing costs (choice A) would not adequately address the external cost. The government taking over production (choice D) or restricting sales to those willing to pay high prices (choice E) may not be practical or effective solutions.

To Internalize a Negative Externality, _____