Reply Wed 27 Feb, 2013 09:04 pm
How is externality a market failure?

I have been doing a bit of study on Ronald Coase and Arthur Pigou, their works aim to address externalities. Then I thought of types of market failures, so, in light of general economics, how is externality a market failure?
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lacroft
 
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Reply Mon 15 Jul, 2013 06:12 pm
@jwjohnwong1,
I don't know why my previous (long) answer was deleted.

You can see externalities as a market failure because if there are externalities, the price of a good or service will not include the social costs or benefits associated with the production of them. Without intervention, there will be too much or too less of such goods.

Examples:
Positive externalities: honey
Negative externalities: cigarettes

Regards
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