This chapters talks about the affects of externalities.
Externalities occur when important economic interactions take place outside of the market so the true cost of the good isn't shown.
Negative externalities cause the social cost of a good to be above the supply curve.
Positive externalities put the social cost of a good above the demand curve.
Both of them create market inefficiency.
The two ways to solve externalities is through private policy or government regulation.
The government's way to solve these inefficiencies is through taxes and subsidies.
Negative externalities should be taxed.
Positive externalities should be subsidized.
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