Arrange the following steps in the correct order to illustrate the process of addressing negative externalities in a market economy: A) Government imposes a tax on the good or service, B) Identification of the negative externality, C) Reduction in the quantity produced to achieve social optimum, D) Market price reflects true social costs.

To address negative externalities in a market economy, the first step is to identify the negative externality, which means recognizing the harmful effects that a good or service has on others, like pollution from factories. Once the issue is clear, the government can impose a tax on the good or service to make it more expensive, encouraging producers to reduce the quantity they produce. This tax helps adjust the market price, so it reflects the true social costs of the externality, like the costs of cleaning up pollution. As a result, producers will likely cut back on production to avoid the tax, leading to a reduction in the quantity produced that aligns better with society's overall well-being. For example, if a factory pollutes a river, the government can tax the factory, making it less profitable to pollute, which can lead to cleaner water for everyone.