Externalities

External costs or benefits that are ignored, causing misallocation of resources in both production and consumption, illustrated using marginal private and social cost and benefit curves.

Lead to partial market failure, with negative externalities causing overproduction as third-party costs are ignored and positive externalities resulting in underproduction.

Effects that a product in consumption can generate for others, such as pollution and congestion from driving or visual amenity for neighbours from gardening.

Increased production often generates negative externalities like carbon emissions, which are among the environmental consequences of growth.

Where marginal social cost diverges from marginal private cost, preventing an efficient allocation of resources even in perfect competition.

Costs or benefits that indirect taxation internalises when negative, while subsidies encourage the consumption of goods with positive ones.