Externalities are only inefficient when they impose a cost. They are not inefficient when they bestow a benefit.

Question

Quizplus · Accepted Answer

Externalities, whether they impose a cost (negative externalities) or bestow a benefit (positive externalities), can lead to market inefficiencies because they cause a divergence between private and social costs or benefits, leading to overproduction or underproduction relative to the socially optimal level.

Externalities Are Only Inefficient When They Impose a Cost