In perfectly competitive markets there are no externalities. That is, actions of decision-makers on each other's wellbeing do not extend beyond those effects transmitted by prices.

Question

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In perfectly competitive markets, all externalities are internalized through the price mechanism so that decision-makers take into account the full costs and benefits of their actions on others. Therefore, the actions of decision-makers do not have any external effects beyond what is reflected in market prices. In perfectly competitive markets, there are no externalities because prices reflect all costs and benefits. Decision-makers cannot affect each other's well-being beyond the impact of prices.

In Perfectly Competitive Markets There Are No Externalities