Market failure - externalities

negative externalities of production

• produced when the free-market is operating above the socially optimum amount due to over production of goods or services

  

negative externalities of consumption

• when the market operates with the socially optimum below the free-market due to the marginal private benefit being higher than the marginal social benefit due to over-consumption

  

positive externalities of production

• occurs when a product of service is being under-produced in the free-market meaning that the marginal private costs are higher than the marginal social costs

  

positive externality of consumption

• when products or services are being under-consumed in the free-market due to the marginal social benefit being higher than the marginal private benefit.