Government can deal with externalities through the use of taxes and subsidies.

Question

Quizplus · Accepted Answer

Taxes can be imposed on activities that generate negative externalities, such as pollution, to discourage them. Subsidies can be provided for activities that generate positive externalities, such as education or research and development, to encourage them. These measures can help to internalize the external costs or benefits and lead to a more efficient allocation of resources.

Government Can Deal with Externalities Through the Use of Taxes