When a factory dumps waste into a river, the cost doesn’t stay inside the factory gates—it spills over to fishermen, swimmers, and everyone downstream. When you get a flu shot, you’re not just protecting yourself; you’re also making it less likely that your neighbour gets sick. These spillovers, called externalities, are one of the most important reasons markets sometimes fail to work well for everyone. This chapter looks at why that happens and what we can do about it.