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Negative externalities involve detrimental effects on third parties from certain actions. Air pollution is a common example that has harmful effects on the environment and public health, requiring government intervention to address.
A negative externality occurs when a third party experiences a detrimental effect from the actions of others. An example of a negative externality is air pollution, where industrial activities harm the environment and public health. Governments can address negative externalities by imposing taxes or regulations on activities causing harm to society.
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