Negative externality market failure is addressed by government rules that prohibit a company from dumping harmful trash into a river.
The government can help to reduce negative externalities by taxing items whose production results in spillover costs. The cost of producing such commodities is effectively raised as a result of this taxation.
Taxation is one method for dealing with externalities. Governments can levy a tax on the items that cause externalities, such as pollution, to assist lessen the negative impacts of those externalities.
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