In the context of negative externalities, why is it important for the market to account for social costs?

Negative externalities occur when a person's actions have harmful effects on others that are not reflected in the cost of goods or services. This means that the market price may be too low because it doesn't include the social costs, which are the negative impacts on society and the environment. For example, if a factory pollutes a river, the company saves money by not treating waste, but the surrounding community suffers from health issues and loss of clean water. If the market accounted for these social costs, the factory would either reduce pollution or pay for the harm it causes, leading to a more efficient and fair allocation of resources. Therefore, recognizing social costs helps ensure that businesses operate in a way that considers the well-being of everyone, not just their profits.