Private markets have a tendency to overallocate negative externalities that are connected to an item or service.
When there is a positive externality, the third party profits from the transaction between a buyer and a seller without bearing any of the costs. If this is the case, markets frequently generate less than necessary since producers do not take into account the additional benefits to others.
Positive externalities occur when a benefit grows. Externalities so occur when parties other than the producer or the consumer share the costs or rewards of a transaction.
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