why market outcome are ineffeciant in the presence of externalities?

[ttoommaa]

You have to think about two types of costs/benifits - private and social. For example, private cost of pollution might be relatively low - the polluter doesn't want to pay for cleaning air or water - but social cost is rather high. Opposite example: it's very expensive for me to have fireworks, but I can't exclude other people from enjoying the fireworks for free. Thus, efficient quantity does not equal efficient cost in presence of externalities. It's easy for a government to provide too much or too little of a sertain good, because true market cost is hard to estimate.
I hope this makes sense.