Question

Suppose you want to put a dollar value on the external costs of carbon emissions from a power plant. What information or data would you obtain to measure the external [not social] cost?

Short answer

The information required to measure the external [not social] costs is the cost of reducing the carbon emissions in other areas.

Step-by-step solution

Step 1. Meaning of external costs.

External cost is a cost as a result of economic activity, imposed by a producer or a consumer on another producer or consumer who is outside the exchange.

Step 2. The information for the external cost.

The information required to measure the external [not social] costs is the cost of reducing the carbon emissions in other areas.

The firm should impose a charge in the dollar value according to the cost of reducing the same amount of carbon emissions. This will enable the firm to charge the correct dollar value on the external costs.