Question

what role does the us government play in combating externalities?

Answer 1

The US government manages the externality and keeps it balanced preventing a loss in the social benefit or increasing it.

In a market where the private cost is less than the social cost, the firm will be generating a negative externality here, the government will put a tax or penalty to increase the private cost and take away that exernality.

If the market is having a positive externality i.e. the private cost is less than the social cost, the government will step in and put a subsidy on that action so that the benefit in the market can be increased.