Whenever an action creates a negative externality, the private individual allocates too many resources toward the production of that item. This happens because the producer is focused on their own profit maximization problem and is not accounting for any external costs associated with production. When it comes to meat packing or factory farming, producers don’t take into account the external costs of pollution or the potential risk of bacterial infection. Regulating such industries can mandate that firms take into account the social costs of production rather than the private cost of production.
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