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Discuss whether taxation is the most effective solution to the market failures arising
from negative externalities:

Market failure occurs when there is an inefficient allocation of resources in a free market. Negative
externalities are a spillover effect that negatively affects a third party: when social costs outweigh
private costs. Governments…

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company. The government would threaten companies to use cleaner technology or face being
shut down, forcing companies into investing in this technology and therefore internalising the
externality.

In conclusion, although taxation may be a very effective solution in theory, in practice it falls down.
There are various other solutions just…

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