Externalities impact market outcomes from "summary" of Principles of Economics by Saifedean Ammous
Externalities refer to the costs or benefits that affect individuals or parties not directly involved in a market transaction. When externalities are present, the market outcome is not efficient because the price does not reflect the true social costs or benefits of production or consumption. Negative externalities occur when the production or consumption of a good imposes costs on third parties. For example, pollution from a factory imposes health costs on surrounding communities. In this case, the market price of the good does not include the full cost of production, leading to overproduction and a socially inefficient outcome. Positive externalities, on the other hand, occur when the production or consumption of a good benefits third parties. For example,...
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