If consumption of a good by one person imposes costs on a party other than the producer,

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Quizplus · Accepted Answer

This situation describes a negative externality, where the consumption of the good by one person creates costs or harms on a third party. Examples include pollution from driving a car, second-hand smoke from smoking, or noise pollution from loud music. Negative externalities lead to overproduction and consumption of the good from society's point of view, and the market will not correct the problem on its own.

If Consumption of a Good by One Person Imposes Costs