In the context of market failure, which of the following strategies can effectively address negative externalities and promote socially optimal output?

Market failure happens when the production or consumption of goods does not lead to the best outcome for society. A negative externality, like pollution from a factory, means that the costs of that pollution are not reflected in the price of the product, leading to too much of it being made. To fix this, one effective strategy is to impose a tax on the harmful activity, which makes the product more expensive and encourages producers to reduce pollution. For example, if a factory is taxed for every ton of pollution it creates, it may invest in cleaner technology to lower its tax burden. This way, the price reflects the true cost to society, leading to a socially optimal output where the benefits of production are balanced with the costs to the environment.