Externalities is a cost or benefit nottransmitted trough prices ,it is the outside the Market Mechanism .
Externalities are created when social costs and benefits differ from private costs and benefits .
Market prices and profits can be misleading as they are not the true value prices and profits to the society .
Market putting wrong signals leading a Misallocation of resources.
External costs of productionBy driving a car consumers increase the amountof pollution.
External benefits of consumptionBy listening to music ,the pleasure can be private(only for a person or specific group of people )and also can be social (provideenjoyment/entertainment to the others aroundyou )
For example consumption , consumer can create externalities like :-pollution from cars and Motorbikes-Litter on streets and in public places-Vandalism of public property
Positive externalities create mostly benefits ,ex:-research and development -> governmentintervention (subsidize it )-education (consumption) -> social benefit isgreater than private benefit
Moral codes and social sanctions Voluntary organization Internalization (when activities with complementary externalities are merged into one firm ,thus eliminating the externality ) Contracts –Parties through negotiation can agree as to how to regulate the externality .
http://tutor2u.net/economics/content/topics /externalities/what_are_externalities.htm http://users.hunterlink.net.au/~ddhrg/econ/ ext1.html http://www.econlib.org/library/Enc/Externa lities.html Etc.