When external benefits and costs are internalized through policy, __________.

Question

the market will not reach equilibrium

the government needs to intercede in the market

the market price will include the externality

the market price does not include the externality

Answer 1

When external benefits and costs are internalized through policy, the market price will include the externality.

This means that externalities (positive or negative effects on third parties not directly involved in a transaction) are accounted for in the pricing mechanism, leading to a more efficient allocation of resources and a market equilibrium that reflects the true costs and benefits associated with goods and services.