Why is Positive/Negative Externalities Market Failure?
You want production to occur where the full cost to society, be it positive or negative, is taken into account. This is to ensure that scarce resources are allocated at maximum efficiency e.g. if you have market failure arising from positive externalities it is because of underproduction. The product is undervalued by the marketplace and therefore insufficient resources are devoted to its production. Basically, you want every cost and benefit to be internalised, so that you aren’t affected by a decision you did not make. I think!
