The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

Question

Quizplus · Accepted Answer

By taxing goods that generate negative externalities (such as pollution), the government can make producers and consumers bear the full social cost of their actions, thereby reducing the production or consumption of these goods. Conversely, by subsidizing goods that generate positive externalities (such as education or vaccinations), the government can encourage more production or consumption of these goods, aligning private incentives with social benefits.

The Government Can Internalize Externalities by Taxing Goods That Have