Externalities and market failure

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CBSE Board
11th Class microeconomics
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12th Class Macroeconomics
12th Indian economics

externalities means the situation when the cost or benefits related to a transaction not only affects the trans actors but also the other party this is called the third party effect. externalities can be two types positive externalities and negative externalities
pollution from factories adversely affects the health of the people in the neighbourhood but such a cost is not included in the estimation of cost of production this is called negative or harmful externalities. externalities could be beneficial as well the painting of house by individual may leads to rise in the market value of also they also that the other properties of neighbourhoods the benefit acres to the third party this is an example of positive externalities