How does the presence of negative externalities, like pollution, typically affect market equilibrium?

Negative externalities, such as pollution, occur when a company's actions harm others without paying for the costs. This can lead to market failure because the true costs of production are not reflected in the prices of goods. For example, if a factory produces steel and pollutes the air, the price of steel might be low, but it doesn’t include the health problems and clean-up costs caused by the pollution. As a result, too much of the product is produced and consumed, leading to an imbalance in the market. To fix this, governments might impose taxes or regulations to make sure the costs of pollution are considered, helping to reach a better market equilibrium where both producers and the public are taken care of.