Explain what is meant by "internalizing an externality," and describe three methods by which this can be done.
What will be an ideal response?
An externality occurs when the actions of one agent affect other agents. In the case of a negative externality, the action adversely affects other agents, and so the agent taking the action faces artificially low costs. For example, when a firm creates pollution as a by-product of its production process, this adversely affects others. Internalizing the externality involves making the firm face the true cost to society of its production process, including the damages inflicted on other parties. This can be done by levying a pollution tax equal to the value of the damages done to others, or by controlling the output of the firm through either command-and-control methods or by issuing pollution permits. All of these will increase the cost of production to the firm, with the goal of bringing the cost that the firm actually faces closer to the actual cost to all agents (including the firm) in the economy.
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The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community
If TWC operated under a marginal cost pricing rule, how many households in Oakland are served? A) 20,000 B) 30,000 C) 40,000 D) 50,000 E) 10,000
Any output combination outside a production possibilities frontier is associated with unused or
underutilized resources. Indicate whether the statement is true or false
A credit card that charges a monthly interest rate of 1.5% has an effective annual interest rate of:
A. 15.0% B. 18.0% C. 19.6% D. 17.50%
________ buys so as to make MUx/MUy = Px/Py for all pairs of goods.
A. Every consumer B. A utility-minimizing consumer C. A utility-maximizing consumer D. Only a consumer with an unlimited budget