Externalities

Market failure is an economic inefficiency where allocative and productive efficiency are not achieved.

Productive efficiency is using all resources.

Allocative-full satifaction of consumer.

Externalities-affect to the third parties. There are two types of externalities.

1 Negative

2 Possitive

Examples of negative extarnalities:

1 Productive. One factor produce something. It effects on environment so it is negative externalities.

2 Allocative. For example, if I buy ciggarates I will achieve my satisfaction but it will affect to a person who is staying next to me.

Private cost+external cost=social cost

Examples of positive externalities. If I buy an aftershave lotion it will be really good smell and for example my girlfriend will like it. So it's positive extarnality.

Private benefit + External benefit = Social benefit