Which of the following best describes the role of government in addressing externalities?

Externalities are effects of economic activities that impact people who are not directly involved in those activities, like pollution from a factory affecting nearby residents. The government plays an important role in addressing these externalities by creating rules and regulations to reduce harmful effects. For example, if a factory produces smoke that harms the air quality, the government might impose limits on how much smoke the factory can release. This ensures that the factory takes responsibility for its actions and helps protect the health of the community. By intervening, the government can help balance the interests of businesses with the well-being of the public.