The market-driven approach to correcting externalities is to internalize third party costs and benefits, for example, by requiring a polluter to repair any damage caused. But, in many cases internalizing costs or benefits is not feasible, especially if the true monetary values cannot be determined.
Basically the marginal social cost is marginal private cost + externality. The difference between the marginal private cost and the marginal social cost is the externality and is equal to the tax or Coasian bargaining payment required for efficiency at that quantity. Source(s): AreJay · 6 years ago. So the quantity if it DOES NOT have to internalize the cost will be where the price (demand function) is equal to / crosses the PRIVATE marginal cost function/curve. If it DOES have to internalize the cost the quantity will be where the SOCIAL marginal cost function is equal to the price. So I have a table with quantity, Marginal private cost and marginal social cost. They are asking me how many tons the firm should produce at a certain price if it 1) has to internalize externalities and 2) if it does not have to internalize them. So the quantity if it DOES NOT have to internalize the cost will be where the price (demand function) is equal to / crosses the PRIVATE marginal cost function/curve. If it DOES have to internalize the cost the quantity will be where the SOCIAL marginal cost function is equal to the price. A positive externality (also called external benefit or external economy or beneficial externality) is the positive effect an activity imposes on an unrelated third party. Similar to a negative externality, it can arise either on the production side, or on the consumption side. Examples of positive production externalities include: 1  A beekeeper who keeps the bees for their honey. 2  A side effect or externality associated with such activity is the pollination of surrounding crops by the bees. A negative externality (also called external cost or external diseconomy) is an economic activity that imposes a negative effect on an unrelated third party. It can arise either during the production or the consumption of a good or service. The market-driven approach to correcting externalities is to  internalize  third party costs and benefits, for example, by requiring a polluter to repair any damage caused. But, in many cases internalizing costs or benefits is not feasible, especially if the true monetary values cannot be determined. A negative externality (also called external cost or external diseconomy) is an economic activity that imposes a negative effect on an unrelated third party. It can arise either during the production or the consumption of a good or service. Best Answer: OK.... So the quantity if it DOES NOT have to internalize the cost will be where the price (demand function) is equal to / crosses the PRIVATE marginal cost function/curve. If it DOES have to internalize the cost the quantity will be where the SOCIAL marginal cost function is equal to the price. 1 Externalities are side effects in a market, i.e. costs and benefits that accrue to people who neither produce or consume a product. 2  For example, pollution is an externality because I am affected by pollution from factories even when I neither produce nor consume the products that they make. ” For example, pollution is an externality because I am affected by pollution from factories even when I neither produce nor consume the products that they make.”. Moreover, I am not sure we have a useful definition of “pollution” – but I will leave that for another day. Let me start with a quick recap of the whole externality deal, in bullet-point form: 1  Externalities are side effects in a market, i.e. costs and benefits that accrue to people who neither produce or consume a product. ” For example, pollution is an externality because I am affected by pollution from factories even when I neither produce nor consume the products that they make.”. Moreover, I am not sure we have a useful definition of “pollution” – but I will leave that for another day. 1 Taxing or subsidizing in the amount of the externality that a good creates is referred to as “internalizing” an externality, and taxes (and subsidies, I suppose) of this form are called Pigovian taxes. ” For example, pollution is an externality because I am affected by pollution from factories even when I neither produce nor consume the products that they make.”. Moreover, I am not sure we have a useful definition of “pollution” – but I will leave that for another day. However, sometimes, costs or benefits may spill over to a third party not directly involved in the transaction. These spillover costs and benefits are called externalities. A negative externality occurs when a cost spills over. A positive externality occurs when a benefit spills over. So, externalities occur when some of the costs or benefits of a transaction fall on someone other than the producer or the consumer. A negative externality exists when a cost spills over to a third party. A positive externality exists when a benefit spills over to a third-party. Government can discourage negative externalities by taxing goods and services that generate spillover costs. internalizing an externality. The act of making a change in a company's private costs or benefits in order to make them equal to the company's social costs or benefits.
https://answers.yahoo.com/question/index?qid=20100503162233AAiEPAX https://answers.yahoo.com/question/index?qid=20100503162233AAiEPAX https://en.wikipedia.org/wiki/Externality https://en.wikipedia.org/wiki/Externality https://answers.yahoo.com/question/index?qid=20100503162233AAiEPAX http://www.economistsdoitwithmodels.com/2010/08/02/i-suppose-that-this-is-one-way-to-internalize-an-externality-turbine-edition/ http://www.economistsdoitwithmodels.com/2010/08/02/i-suppose-that-this-is-one-way-to-internalize-an-externality-turbine-edition/ http://www.economistsdoitwithmodels.com/2010/08/02/i-suppose-that-this-is-one-way-to-internalize-an-externality-turbine-edition/ https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-11-externalities http://www.businessdictionary.com/definition/internalizing-an-externality.html
how to internalize externalities