When a market successfully understands a negative externality like pollution, and assigns costs in a way that they are reflected in the market price, the market is said to be .

allocating resources efficiently

Explanation:

A good has negative externality if the costs to third parties not involved in production is greater than the benefits. an example of an activity that generates negative externality is pollution. Pollution can be generated at little or no cost, so they are usually overproduced. Government can discourage the production of activities that generate negative externality by taxation. Taxation increases the cost of production and therefore discourages overproduction. Tax levied on externality is known as Pigouvian tax.

Negative externality causes inefficient allocation of resources. By assigning costs to negative externality, the negative externality produced would reduce and this would lead to efficient allocation of resources

b is the correct answer