Negative Externalities of Consumption as a Market Failure

In this lesson we're going to examine a different example of market failure, one in which it is the consumption of a good that creates negative costs for society. In such a market, private consumers of the good benefit more from its consumption than society as a whole. Consider the example of tourists in a beach town who consume too large amounts of alcohol while on their vacation. Such individuals are just enjoying themselves, and probably have a blast getting drunk, but in the process they create lots of trouble for the local community in the beach town.

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