If there are consumption externalities, then a competitive equilibrium is not necessarily Pareto optimal.

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Consumption externalities occur when an individual's consumption affects the welfare of others, either positively or negatively. In such cases, the market may not take into account the full social cost or social benefit of consumption, and therefore a competitive equilibrium may not lead to a Pareto optimal outcome. This is because some individuals may consume more or less than the socially optimal level, leading to a suboptimal allocation of resources.

If There Are Consumption Externalities, Then a Competitive Equilibrium Is