Question

If a negative externality is to be internalized by the producer of a good:

the producers' marginal costs should be increased by an amount equal to the marginal external cost resulting from production of the good.

the producers' marginal costs should be reduced by an amount equal to the marginal external cost resulting from production of the good.

the consumer of the good should receive a subsidy equal to the marginal external cost resulting from production of the good.

the government should produce the good

Club goods

Are sometimes provided by the private sector and sometimes by the public sector

Cannot be provided by the private sector and, as such, require pubic sector provision

Are best left up to the private sector without public sector intervention

Can not be provided by the private sector OR the public sector. They must be provided by clubs of providers.

Answer 1

a) To internalize the Negative externality by the producer of the goods the producer's marginal cost should be increased by an amount equal to the marginal external cost resulting from the production of the good. The answer is "A".

Internalization of cost means making the cost of the firm equal to the social cost of producing those goods it is possible only when the cost is paid by the firm causing externality.

b) Club goods are those which are non-rivalrous but excludable. Thes are the goods at the combination of public and private goods. And are non-excludable up to a point. These goods can be provided by the private sector and sometimes by the public sector. the answer to this question is "A". They are natural monopolies.