What are externalities? Explain with diagram why is the optimal output not reached under negative externality.

Externalities refer to the unintended side effects or consequences of an economic activity that affect third parties who are not directly involved in the transaction. These effects can be either positive or negative. In microeconomics, negative externalities occur when the consumption or production of a good or service imposes costs on others not directly involved in the transaction, while positive externalities provide benefits to others.

### Negative Externalities and Optimal Output

When a negative externality is present, the social cost of production is higher than the private cost incurred by the ____ _____ _______ ____ ___ _____ _______ _______ ________ ______ ____.
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