externalilties MC

Negative externalities in a market could be internalized if
a) there were a tax on the product
b) there were a subsidy on the product
c) production were stopped
d) the Coase Theorem failed

which is the correct answer? what does it mean by internalized?

In this case, internalized means that the social costs of the externality are some-how "captured" or accounted for in the final price and quantity.

I would go with a). A tax per unit on the producer that is equal to the per-unit externality cost would have the effect of internalizing the externality.

BTW, economists refer to such a tax as a Pigouvian tax (after the British Arthur Pigou)

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