... cost is great thus if they want to produce less dioxin they will have to produce less paper and thus getting less profit (which of course they will not do) considering it's a profit-maximizing firm, and when firms fail to allocate resources efficiently, it is called a market failure. So it is up to the government to control the exhaust of dioxin, and thus prevent the market from allocating resources incorrectly, and protect the well-being of bystanders. Without government intervention the demand curve for paper will reflect the value of paper to consumers, measured in amount of money they are willing to pay for it, and the supply curve will reflect the cost of producing paper, and the price will adjust to the balance of supply and demand for paper itself. So the market allocates resources to maximize the total value to the consumers minus the total cost of production of paper. But ...

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