What is meant by the term "internalizing an externality"? How does a Pigovian tax or subsidy internalize an externality?
What will be an ideal response?
Internalizing an externality refers to transferring the external benefit or cost to the producer or consumer that generates the externality. A Pigovian tax transfers a negative externality in production back to the producer, which reduces the supply of the product and results in an efficient level of output. A Pigovian subsidy transfers a positive externality in consumption back to the consumer, which increases the demand for the product and results in an efficient level of output.
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In the figure above, the equilibrium market price is $20. Area A is the
A) marginal cost of 150th unit. B) willingness to pay for the 150th unit. C) producer surplus. D) consumer surplus. E) marginal benefit of 150th unit.
When the value of our goods exports is less than the value of our goods imports,
a. d and e. b. the value of the dollar must fall. c. there will be domestic unemployment. d. there will be an unfavorable balance of trade. e. foreign currency reserves must fall.