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An externality is something that, while it does not monetarily affect the producer of a good, it does influence the standard of living of society as a whole. A positive externality is something that benefits society, but in such a way that the producer cannot fully profit from the gains made. A negative externality is something that costs the producer nothing, but is costly to society in general. Negative externalities, unfortunately, are much more common. A company that pollutes loses no money in doing so, but society must pay heavily to take care of the problem pollution caused. The problem this creates is that companies do not fully measure the economic costs of their actions. Neither the market nor private individuals can be counted on to prevent this inefficiency in the economy, so the government must intervene.

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