Answer to Question #285262 in Microeconomics for giahue

Question

"When it comes to pandemics, inadequacies of the vaccine is an example of negative externalities in the market. Leads to market failure. The unvaccinated population poses a greater risk to society as the virus continues to spread and markets close."

Explain in detail why negative externalities lead to market failure? What exactly are negative externalities? in production or consumption?

Answer 1

Externalities create market failure because a product's or service's price equilibrium does not adequately reflect the full costs and benefits of that product or service. When the creation or consumption of a product results in a cost to a third party, this is known as a negative externality. Negative externalities like as air and noise pollution are frequently mentioned. When production and/or consumption impose external costs on third parties outside of the market for which no acceptable remuneration is made, negative externalities develop. As a result, societal costs outweigh private expenses.