When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to
A)equalize private value and private cost.
B)equalize private cost and external cost.
C)externalize the actions of the buyers and sellers.
D)internalize the externality.

Question

Quizplus · Accepted Answer

When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to internalize the externality. This happens when the market price includes the external cost or benefit, leading to a socially optimal level of production and consumption.

When a Policy Succeeds in Giving Buyers and Sellers in a Market