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If a business produces high external benefits. A government will want to encourage this by for example, giving tax reliefs or to perform nationalization.

If a business produces high external costs, like a cigarette manufacturer. A government will want to discourage this, for example by putting high taxation on its products. But ironically because of the good government revenue this kind of taxation earns the government, it will try to gain a equilibrium between regulating people smoking and needing government healthcare with earning a lot from the tax imposed.

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Q: How government can react with businesses?
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