Public Economics
A negative externality occurs when an economic activity imposes costs on third parties who are not directly involved in that activity, leading to market failure. This phenomenon can result in overproduction or underpricing of goods and services that generate social costs, as individuals or businesses do not account for these external effects. Addressing negative externalities is crucial for achieving optimal resource allocation and can involve interventions such as taxes, regulations, or subsidies to mitigate their impact.
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