Final answer:
An externalizing problem includes situations like air pollution from manufacturing, a negative externality, while internalizing involves pricing in the environmental costs. Externalities affect allocative and productive efficiency, having implications for both market failure and global issues like environmental protection.
Step-by-step explanation:
An example of an externalizing problem is a manufacturing activity that causes air pollution, imposing health and clean-up costs on society. This represents a negative externality, where a firm's production reduces the well-being of others who do not receive compensation. On the other hand, an example of an internalizing problem is when a company is held responsible for the environmental costs associated with its production, leading to the inclusion of these costs in the pricing of its products or services.
Externalities are essential in understanding allocative and productive efficiency within an economy. For instance, external benefits, such as investments in private education that raise a country's standard of living, may lead to a positive externality. It's important for nations to find a balance between economic output and environmental protection to avoid market failure.