What does it mean to say that an individual or a firm has internalized an externality?
What will be an ideal response?
Externalities are external costs or benefits that firms or consumers do not consider when making decisions. When incentives are altered such that an externality is taken into account, firms and individuals are said to have internalized the externality. So, for example, suppose I raise bees next door to your apple orchard. The bees pollinate your tress and so there is an externality. The externality will be internalized if I buy your orchard.
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Bananas and apples are substitutes. When the price of bananas rises, and a technological advance in apple production occurs at the same time
A) the equilibrium price of apples rises and the equilibrium quantity of apples falls. B) the equilibrium price of apples rises and the equilibrium quantity of apples might rise or fall. C) the equilibrium quantity of apples rises and the equilibrium price of apples might rise or fall. D) the equilibrium price of apples rises and the equilibrium quantity of apples rises.
Which of the following transfer payments is included in GDP?
A) Social Security payments B) welfare payments C) veteran's benefits D) none of the above