Negative externalities produce inefficiency but positive externalities do not.

Question

Quizplus · Accepted Answer

Positive externalities can also result in inefficiency because the market may underproduce goods or services that generate positive externalities due to the fact that the market only takes into account private costs and benefits, while ignoring external costs and benefits. This can lead to a Pareto suboptimal outcome where society would be better off if more of the good or service was produced than what the market naturally produces.

Negative Externalities Produce Inefficiency but Positive Externalities Do Not