In economic theory, an externality occurs when the production or consumption of a good imposes a cost or benefit on a third party who is not involved in the transaction. Negative externalities, such as the pollution generated by a factory, lead to a market failure because the market price of the good does not reflect the true social cost of its production. In such cases, the producer has little incentive to reduce the harmful byproduct, leading to overproduction and an inefficient allocation of resources. Conversely, positive externalities, such as the benefits of a neighbor's well-maintained garden or a person's vaccination, result in underproduction because the individual does not capture the full value of their action. To address these failures, economists often propose government interventions, such as Pigouvian taxes for negative externalities or subsidies for positive ones. These measures are intended to internalize the externality, aligning private incentives with the social good. However, critics argue that determining the exact monetary value of an externality is nearly impossible and that government intervention can lead to bureaucratic inefficiencies that outweigh the original market failure.