Externalities occur when the welfare of others not involved in the production or consumption of a good or service are affected in ways that markets don't take into account on their own.

Question

Quizplus · Accepted Answer

This is the definition of externalities, which are a well-known market failure. Markets can only account for private costs and benefits, not external costs or benefits imposed on third parties.

Externalities Occur When the Welfare of Others Not Involved in the Production