The government can "help" firms to internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

Question

Quizplus · Accepted Answer

This statement is true. By imposing taxes on goods that generate negative externalities, such as pollution or congestion, the government can increase the price of the good to account for the full cost to society. Subsidies for goods that generate positive externalities, such as education or renewable energy, can incentivize firms to produce more of these goods, as the price to consumers will be reduced. These measures can help firms internalize externalities and promote socially desirable outcomes.

The Government Can "Help" Firms to Internalize Externalities by Taxing