The video below discusses how taxes can discourage certain behavior. In other words, if there are negligible transactions costs, as long as someone owns the rights to the air around the steel mill, the efficient outcome will prevail. Thus the negative externality is directly added to the steel mill's marginal cost. Negative Externality A negative externality occurs when an individual or firm making a decision does not have to pay the full cost of the decision. Other sites in the eonor.
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