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Essay On Internalizing Externalities

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Every day, we burn huge quantities of fossil fuels such as coal, gasoline and other different types of crude oils that cause air pollution that possibly cause global warming. Similarly, we generate large amount of wastes every day which are dumped into river, lakes and open spaces. These kind of environmental issues are paradoxically everybody’s problem and nobody’s problem (text-citation required). Do we take the account of the damage that we cause to others every time we drive our car? What factors do we consider to make decisions while buying the luxury products? What are the hidden environmental costs of everyday items, we enjoy using it? Who should pay for these hidden or external costs? Economic activity pollutes air, water and land, …show more content…

This can be done by linking the costs or benefits of those impacts to those who are involved in the economic transaction. The externalities can be internalized if the producer of a good or service change their behavior or adopt new technologies and practice to minimize the impact. The government also could pass regulations that force the producer to change their behavior or to adopt new technologies and practices to minimize the impact. The consumers can voluntarily pay an additional fee to pay for goods or services with fewer externalities. Further, government can use taxes an incentives for the producers to cut back on pollution (Pigou, 1920s). For example, in the gasoline case, the negative externality could be internalized by putting taxes on the gasoline or charging a kind of levy for people driving within city area. These kinds of measures would make driving personal cars within city more expensive, which would encourage people to correct their behavior and might shift to use public transportation services such as bus and taxi. The costs could also be internalized by enforcing stricter rules and regulations on fuel efficiency or

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