Figure 10-2

-Refer to Figure 10-2.How could externalities in this market be internalized
A)if there were a tax on the product
B)if there were a subsidy on the product
C)if production were stopped
D)if the Coase theorem failed

Question

Figure 10-2
 
-Refer to Figure 10-2.How could externalities in this market be internalized
A)if there were a tax on the product 
B)if there were a subsidy on the product 
C)if production were stopped 
D)if the Coase theorem failed

Quizplus · Accepted Answer

The externalities in this market could be internalized if there were a tax on the product. By imposing a tax, the cost of the negative externality (in this case, pollution) would be reflected in the price of the product, making it more expensive to produce and hence reducing the quantity supplied. This would help to reduce the level of pollution in the market.

Figure 10-2 -Refer to Figure 10-2.How Could Externalities in This Market Be