Describe a negative externality of consumption and explain a method the government can impose to reduce it. Give examples.

A negative externality of consumption is when the consumption of a good or service results in negative effects to the third party. An example of this is smoking cigarettes. The consumption of a cigarette is enjoyed by the single consumer, however the people around the user might feel irritated by the smoke. Furthermore, the smoke from cigarettes pollutes the supply of air. An increase in smoking can reduce the supply of clean air in the long-run. To correct this, the government can impose a tax on the consumption of cigarettes. This tax will increase the price of cigarettes, and according to the law of demand, an increase in price leads to a decrease in quantity demanded.