What do you mean by spillover

Question

What do you mean by spillover. Write short note on it?

Answer 1

Government might correct spillover costs through regulation, which requires firms to internalize these spillover costs, or it might tax the spillover until it becomes too expensive for the firm to incur these costs.  This effectively shifts the supply curve to the left as costs of production rise, and the new equilibrium output will be less and closer to the efficient level.  Spillover benefits can be encouraged by government subsidies to the producers of these products or by government production.  In either case, the supply curve shifts to the right which lowers the equilibrium price and leads to a greater equilibrium output level.