Terms and concepts

Positive and negative externalities: an externality is an effect on a third party that is caused by the consumption or production of a good or service

Environmental concerns: effects on the environment as important considerations as well as sustainable development

Lack of public goods: public goods are goods where the total cost of production does not increase with the number of consumers

Underproduction of merit goods: a merit good is a private good that society believes is under consumed, often with positive externalities.

Overprovision of demerit goods: a demerit good is a private good that society believes is over consumed, often with negative externalities

Abuse of monopoly power: imperfect markets restrict output in an attempt to maximize profit.

An externality is a cost or benefit that results from an activity or transaction and affects a third party who did not choose to incur the cost or benefit. Externalities are either positive or negative depending on the nature of the impact on the third party. An example of a negative externality is pollution.

A negative externality is an result of a product that inflicts a negative effect on a third party