How do government subsidies address negative externalities while maximizing social benefits?

Government subsidies are financial support given by the government to encourage certain activities or industries that provide benefits to society. When a negative externality occurs, like pollution from factories, it means that the costs of that activity are not fully paid by the polluters, affecting everyone else. By providing subsidies to cleaner technologies or renewable energy, the government helps reduce pollution and encourages businesses to adopt practices that are better for the environment. For example, if a solar power company receives a subsidy, it can lower its prices, making solar energy more affordable for people, which in turn decreases reliance on fossil fuels. This way, subsidies not only help address the negative effects of pollution but also promote overall social benefits by creating a cleaner and healthier environment for everyone.