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hey everyone welcome to loomis previously we learned that the market outcome generated through a free market maximizes the social welfare however well find that sometimes the free market may fail to docHub the efficient result in this video well talk about the causes and the consequences of something called externalities lets first talk about what an externality is normally when we talk about the market of a specific good we only consider two direct market participants the consumers and the producers as long as the consumers marginal willingness to pay for a product is higher than the marginal cost to the producers then the transaction should and will happen therefore in a free market transactions will happen until the last unit of that consumers marginal willingness to pay is greater than or equal to the producers marginal cost which is exactly where the demand curve will intersect with the supply curve however many transactions in our real life not only affect the direct partic