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Internal means factors or components within a business that can be controlled and external is the exact opposite. External factors, economy, competitors etc... Internal means something done from the inside and external means the opposite, something done from the outside.
Internalizing the externality means shifting the burden, or costs, from a negative externality, such as pollution or traffic congestion, from outside to inside (external to internal). This can be done through taxes, property rights, tolls, and gov...