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This externality can arise from the effects that consumption of an item by one consumer may have on the welfare of others or from the effects that the production of one product may have on the production possibilities of others. As a result, in a competitive market too much or too little of the good will be consumed from the point of view of society.
Two types of externalities exist, positive externalities and negative externalities.
"Positive externalities exist when the marginal social benefit (MSB) of production and or consumption exceeds the marginal private benefit (MPB) i.e. production and/or consumption generate external benefits that may go under-valued by the market...
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