What Is Meant by the Term 'Internalising an Externality'? How

question 25

Essay

What is meant by the term 'internalising an externality'? How does a Pigovian tax or subsidy internalise an externality?

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Definitions:

Price Elasticity

A measure of how sensitive the quantity demanded of a good or service is to a change in its price, indicating how changes in price affect sales volume.

Price-Setting Process

The method or strategy used by a company to determine the selling price of its products or services.

Chowchow

A type of pickled relish made from a mixture of chopped vegetables, commonly used as a condiment.

Cost-Volume-Profit

An accounting technique used to determine how changes in costs and volume affect a company's operating income and net income.