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

question 66

Essay

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

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Definitions:

Federalism

A system of government in which power is divided between a central authority and constituent political units, such as states or provinces.

Constitution

A system of fundamental principles or established precedents according to which a state or other organization is governed; often refers to a written document that outlines these principles.

Ratification Vote

A vote by lawmakers or the general public to formally approve a proposed constitution, amendment, or treaty, making it officially valid and binding.

Amend

To make changes or modifications to legal documents, laws, or constitutions, often to improve or update them.