b) Externalities

b) types of market failure: externalities, under-provision of public goods, information gaps

externality = a spillover effect on a third party uninvolved in the consumption of a good or service

• positive externality of consumption = when consuming a good or service produces positive spillover effect

• negative externality of consumption = when consuming a good or service produces a negative spillover effect

• positive externality of production = when producing the good produces a positive spillover effect

• negative externality of production = when producing a good or service produces a negative spillover effect