Arrange the following steps to illustrate the process of addressing negative externalities in a market: A) Identify the external cost, B) Adjust market prices to reflect social costs, C) Achieve socially optimal production level, D) Implement regulations or taxes to reduce pollution.

To address negative externalities, we first need to identify the external cost, which is the harm caused to others that isn’t reflected in the market price. Once we know what the external cost is, we can then implement regulations or taxes to reduce pollution, which helps to discourage the harmful behavior. After that, we adjust market prices to reflect these social costs, making it more expensive for businesses to pollute. Finally, this leads us to achieve a socially optimal production level, where the amount produced is balanced with the overall well-being of society. For example, if a factory pollutes a river, identifying the pollution as an external cost allows us to impose a tax on the factory, encouraging it to reduce emissions and ultimately leading to cleaner water for everyone.