a) Explain why the people falling sick is an example of a negative externality
People who fell sick are the third party - they haven't participated in the process of production or consumption. The only thing that connects these people with the company, which has caused these illnesses, is location. The factory was near the villages and polluted water and air in that area, people were affected. So there is a negative externality in this case.
b) Suggest 2 courses of action the government could take to try and reduce the possibility of such an incident happening again
- maybe some special comissions to check the filtration systems of the factories should work more effectively. if there had been such comission in this case, they would have noticed the problems and do something and people would not have been affected.
- I think taxation won't really solve the problem - factories will just pay more but not reduce pollution that they cause.
- the government should not let factories to be built so close to villages and places were people live.