The question of externalities, its implications and market failure in the economy"The word externality was created by Arthur Cecil Pigou (1877-1959 ), which was developed earlier by fellow English economists Henry Sidgwick (1838-1900) and Alfred Marshall (1842-1924) into an important aspect of modern economic theory." (1)In a market economy this generally means that an externality occurs when there is a direct effect of the actions of one person or firm on the well-being of another person or firm in a way that is not passed on from market prices. This externality can arise from the effects that the consumption of a good by a consumer can have on the well-being of others or from the effects that the production of a product can have on the production possibilities of others. Consequently, in a competitive market, from society's perspective, too much or too little of the good will be consumed. There are two types of externalities, 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 can be underestimated by the market. Examples include industrial training by companies, research by companies into new technologies, education, etc." (2)For example, on June 16, 2004, entomologists described and named over 1,000,000 of insect species. In the UK it was estimated that the value of pollination services provided by honey bees and bumblebees was around £170 million for outdoor crops (fruit, oilseed rape, etc.) and £30 million for greenhouse crops (tomatoes, peppers, etc.) . However, bee populations in the UK have been declining. This mite has that some beekeepers lost 90% of their hives. It's not good news for Britain's wild bees either. The decline in bee populations is so dramatic that the public is being asked for help, as part of National Insect Week. " (3) In places where substantial positive externalities exist, the good is underconsumed or undersupplied because the free market fails to take their effects into account. This is because the marginal social benefit from consuming the good is greater than the marginal private benefit. In case of external benefits arising from production, the marginal social cost would be the marginal private cost.