Which of the following solves an externality problem through internalization?
A)The state institutes mandatory safety checks for automobiles.
B)The municipal government imposes a height restriction on buildings.
C)Buying property to cut trees and improve the view.
D)The municipal government bans smoking in public buildings.

Question

Quizplus · Accepted Answer

Buying property to cut trees and improve the view is an example of internalizing the externality, as the person who cuts the trees is the one who benefits from the improved view, and therefore is incentivized to only cut down the trees that provide the optimal view. This is in contrast to an externality, where the cost or benefit is imposed on others without compensation or consent. The other choices do not involve internalizing externalities, as they involve regulation or prohibition rather than creating incentives to address the externality.

Which of the Following Solves an Externality Problem Through Internalization