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What Is Meant by the Term "Internalizing an Externality"? How

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Essay

What is meant by the term "internalizing an externality"? How does a Pigovian tax or subsidy internalize an externality?


Definitions:

Department of Homeland Security

A cabinet department of the U.S. government charged with protecting the United States from terrorist attacks and responding to natural disasters.

Cabinet-Level Department

A major administrative unit in the executive branch of the government, typically headed by a Secretary, that deals with broad areas of national policy.

Enabling Legislation

Laws that provide the necessary authority for an entity or agency to carry out its powers and duties.

Discretionary Powers

The authority granted to an official or a body to act according to their own judgment and conscience in certain situations.

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