A negative externality occurs when an activity or decision by an individual or business imposes costs on others who are not directly involved in that activity. For example, when a factory emits pollution into the air, nearby residents may suffer health problems or decreased property values, even though they are not part of the factory's operations. This situation leads to a market failure, as the true costs of production are not reflected in the price of the goods produced. Governments often intervene to address negative externalities through regulations or taxes. For instance, they may impose a tax on pollution to encourage factories to reduce emissions, or they might set limits on the amount of waste that can be released into the environment. By doing so, they aim to align private costs with social costs, promoting a healthier and more sustainable community.