Negative externalities in production:Market efficiency :: Pollution from a factory:?

Negative externalities in production happen when a factory creates costs that affect people who aren’t directly involved in its operations. For example, if a factory pollutes the air while making goods, the nearby community suffers from health problems and dirty air, even though they don’t benefit from the factory's production. This situation shows how market efficiency can be disrupted because the factory does not pay for the harm it causes. As a result, the factory might produce more than what is socially optimal, leading to overproduction and more pollution. In this case, pollution from a factory is like a negative externality that reduces overall market efficiency by not accounting for the true costs of production.