Abstract: On the basis of brief introduction to the general situation of the world rare earth resources and the present situation of international market supply, this paper has studied the origin of the low price of rare earth in China by means of analysis the general mechanism for the formation of rare earth market prices.It is considered that the current rare earth market in China has externality because it fails to take full account of the environmental pollution problems in the production process.Because of the externality, the effective mechanism of the rare earth market organization's economic activities has failed.In order to correct the market failure and give full play to the effectiveness of the market in the allocation of resources, the government should play an active role in improving the market results to solve the problems of low market price, over-exploitation of resources and the pollution of the ecological environment in the development of China's rare earth industry.The paper puts forward the policy of levying the pollution correction tax of the rare earth production enterprises.