1. Explain why both positive and negative externalities are considered market failures?

Externalities both positive and negative lead to market failure because a product or service's price equilibrium does not accurately reflect the true costs and benefits of that product or service.

Explanation:

In Economics market failure of a product is a very vital thing. Except demand, supply and price externalities are another fact that can influence a product's market condition. Positive externalitis are those which positively influence market like well educated labor force benefited company. Similarly, negative externalitis are those which affect company adversely like pollution emitted from company affect surrounding environment and the health of nearby residents.

Therefore, positive and negative externalities both affect the consumption and market of commodity to a great extent.