2. Correcting externalities tend to be an important function of government. One way to think of what an externality is, is to consider costs associated with consumption of a good not borne/internalized by the consumer of a good (which creates inefficiency - to see this think about a plant that makes $10 million in profit but its pollutants cause $20 million in cancer treatments and lost life years, spending $20 million to make $10 million is not the smartest thing we could do). For instance, when you consume peanut butter you pay say $3 for the jar at the grocery store. Now you think that $3 covers the cost of producing the jar of peanut butter plus maybe some profit for the producer. However, the real cost of production should include correcting the destroyed rainforest that had to be cut down to produce the palm oil in your peanut butter. This is because destroying rainforest has a real cost to the locals and to other people around the planet in terms of climate change. Therefore, the jar of peanut butter should really cost say $4 which includes money that would replace the rainforest, this makes the consumer "internalize the cost" of their consumption and in turn will lead to less peanut butter being consumed (which is optimal given the real cost). Another concrete example of an externality, and probably the most used example, is the consumption of cigarettes and second hand smoke. Now, you the consumer pay $6 for a pack of cigarettes and smoke; however, those around you get second hand smoke and some may develop cancer, asthma, or other negative cost. Because these are real cost associated with your consumption of cigarettes that you do not pay for, you have caused an externality - someone else is subsidizing your consumption. To correct this externality the price should be increased to reflect the real cost of smoking cigarettes to say $7 a pack. Part of this increase in price could go to helping people fight cancer for instance. So in a nutshell, because you did some damage to a person through your consumption efficiency requires you to compensate them. That was really long (sorry) but this is an important topic for everyone to know about not just economist. The question is thus, think of the things you consume, can you think of any externalities associated with you consuming that product? What might the government do to correct the externality, or is the government already doing something to correct the externality? (aside: even if the government is doing nothing you still can do something by being informed about your consumption and reducing your consumption of the good, buying products from better suppliers like suppliers that donate money to undo harm done by their production, or by giving money/time yourself to a cause that corrects the externality!)