Negative Externalities
Situation that results in a COST for a different person other than the original decision maker. The costs "spillover” to other people or society.
If the market produces at QEM why is it a market failure?
At QFM the MSC is greater than the MSB. Too much is being produced so there is deadweight loss.
What should the government do to fix a negative externality?
Tax the amount of the externality (Per Unit Tax). The MPC then equals the MSC, no Deadweight Loss (DWL).