What can be done to correct an inefficient market equilibrium that results from externalities?

Externalities are the action of one person that affects the physical or mental health of the surrounded area in the market. Externalities can be positive or negative for society. There are various ways to correct the inefficient market equilibrium due to externalities such that:

• High competition: Increase in competition may protect the market from unfair practices of the producers due to which they have to work efficiently to attract customers. Therefore, they try to improve the technology so that a lower level of externalities cam generate, which encourages consumers to buy the product from such organizations.
• Government intervention: government intervention in the economy will reduce the firm's unfair activities as the government may impose taxes on the emission of pollution or other types of externalities. It may provide a license to some firms so that small firms will not produce the pollution and discourage entering the market so that externalities may reduce.