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market failure, government intervention, externalities, cost–benefit analysis
Imagine enjoying a summer day by a river, only to find signs warning you about water contamination – maybe due to sewage overflows or chemical runoff from nearby farms. Water pollution is an example of a negative externality, where the costs (such as health risks and environmental damage) are not reflected in the market price. This leads to overproduction of pollution and market failure, requiring government intervention through taxes, regulations, or subsidies.
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