Nature of externalities Arise because there is no market price attached to the activity Can be produced by people or firms Can be positive or negative Public goods are special case Positive externality's full effects are felt by everyone in the economy.4 Nature of Externalities • Arise because there is no market price attached to the activity. • Can be produced by people or firms. • Can be positive or negative. • Public goods are special case. – Positive externality’s full effects are felt by everyone in the economy