Marshallian Externalities

Marshallian externalities refer to the economic impact that an action by one party can have on others, which is not reflected in market prices. They can be positive or negative. For instance, if a company invests in a beautiful garden, everyone in the area benefits from the enhanced aesthetics, a positive externality. Conversely, if a factory pollutes a river, local residents suffer the consequences, a negative externality. These effects highlight how individual decisions can have wider social implications, often justifying the need for public policies to manage and mitigate their impacts.