How do government subsidies for private goods impact the free market when considering externalities?

Government subsidies for private goods can influence the free market by encouraging the production and consumption of those goods, especially when there are externalities involved. Externalities are effects of production or consumption that impact people who are not directly involved in the transaction, like pollution from a factory affecting nearby residents. When a government provides subsidies, it can help reduce the negative effects of externalities, making goods more affordable and accessible. For example, if the government subsidizes solar panels, more people might buy them, leading to cleaner energy and less pollution. However, this can also distort the market by creating a reliance on subsidies instead of allowing prices to reflect true supply and demand.