Chp. 10:

Externality: the uncompensated impact of one person’s actions on the well-being of a bystander,If it’s adverse then the negative externality,If it’s beneficial the positive externality, and a Market is not efficient when there are externalities because buyers and sellers neglect the effects of their actions. For example, exhaust from cars is a negative eternality, restored historic buildings is a positive externality, dogs barking is a negative externality, and research into new technology is a positive externality. For externalities and market inefficiency, the Demand curve represents the value of the good to the consumers and how willing they are to buy that good while the Supply curve represents the cost of the good to the producers and how willing they are to produce that good at a given price. In addition, Negative externalities Cost to society is larger than the cost to producers, Social-cost: private costs of producers plus the costs of others indirectly affected, Difference between supply and social cost curve is a cost of the negative externality.