If production creates a negative externality,social welfare can be increased through

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Taxation can internalize the negative externality and create a more efficient allocation of resources. By imposing a tax on the producer equal to the cost of the negative externality, the producer will take into account the full cost of production and reduce output to the socially optimal level. Subsidization may only worsen the negative externality, and antitrust laws and free market policies are not related to addressing negative externalities. Allocative efficiency is a desirable outcome but not a solution to negative externalities themselves.

If Production Creates a Negative Externality,social Welfare Can Be Increased