All of the following are ways the government can correct positive externalities by imposing regulations.
In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that results from another party's activity. Externalities can be viewed as unpriced commodities involved in consumer market transactions or producer market transactions.
Consumption, production and investment decisions by individuals, households and businesses often affect those who are not directly involved in the transaction. Sometimes these indirect effects are negligible. But when they get big, they can become a problem economists call externalities.
Externalities often occur when the production or consumption of a product or service in private price equilibrium fails to reflect the true cost or benefit of that product or service to society as a whole. As a result, the external competitive equilibrium no longer satisfies the Pareto optimum.
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