What does the phrase 'internalising an external cost' mean?
A) limiting the extent to which domestic firms can outsource production
B) prohibiting economic activities that create externalities
C) forcing producers to factor into their production costs the cost of the externalities created in the production of their output
D) finding a way to address cross-border pollution

Question

Quizplus · Accepted Answer

Internalizing an external cost refers to the process of including the cost of negative externalities in the production cost of a good or service. By internalizing the cost, producers are incentivized to reduce their negative impact on the environment or society, therefore reducing externalities. This can be achieved through policies such as taxes on carbon emissions, which forces companies to factor in the cost of pollution during their production process.

What Does the Phrase 'Internalising an External Cost' Mean