government failure, externalities, methods of government intervention
If economists see two people trade, they infer that the transaction was profitable for both parties. If an exchange is mutually beneficial, is there any reason for society to interfere — for example, by changing the terms or, in extreme cases, by banning the exchange? It turns out that there are sometimes good reasons to do so. One clear case is if the transaction hurts a third party, who did not have a say in it.
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