INTERVENTION THROUGH REGULATION
Price controls: in some markets government might introduce price controls to ensure that an acceptable price is charged for the product. Price ceilings are maximum allowable prices set below the free market price, eg rent controls. Price floors prevent prices falling too low, eg farm prices in the CAP.
In some industries, eg the privatised utilities, a regulator set the price the company can charge (RPI - X pricing). The water regulator OFWAT, prevents the private sector monopoly water companies abusing their dominant market power.
Legislation: the government can pass laws which will attempt to limit the amount of externalities generated from economic activity, eg MOT tests on cars over three years of age; speed limits in built up areas; gun controls; under age drinking. By law children under the age of 16 must have access to education facilities.
Free provision at point of use: the government allows some services (merit goods) to be consumed free at the point of use because of the positive externalities they generate, eg free state education up to the age of 16; free access to NHS.