The Neighbors Make Too Much Noise...

Sometimes our costs do not have an action. These actions can affect others and yet we do not suffer any consequences. A good example of just such a negative externality would be pollution - the pollution from a car, or even noise pollution due to loud music.

On the other hand, an externality can also be positive. If the exterior of a house is particularly beautiful, passerby and neighbor alike will receive a benefit from its appearance.

The inability to charge for externalities (positive and negative) can often be a problem and is therefore an opportunity for better resource allocation.