22. To internalize a negative externality a. a producer\'s costs should be reduc

Question

22. To internalize a negative externality a. a producer's costs should be reduced by an amount equal to the external cost resulting from the production of a good b. a producer's costs should be increased by an amount equal to the external cost resulting from the production of a good c. a producer should receive a subsidy equal to the external cost resulting from the production of a good d. the government should take over the production of a good e. the government should sell a good only to those who are willing to bear the burden of the externality in the form of high prices

Explanation / Answer

Answer
Option b
The negative externality is compensated by the tax of an amount equal to externality so the cost is increased by the amount of externality.

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