Market Failures: Externalities o When the impact on the bystander is adverse, the externality is called a negative externality o When the impact on the bystander is beneficial, the externality is called a positive externality H arc Inc items and derived items copyright o 2001 by Harcourt, IncHarcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Market Failures: Externalities uWhen the impact on the bystander is adverse, the externality is called a negative externality. uWhen the impact on the bystander is beneficial, the externality is called a positive externality