Final answer:
A market is where buyers and sellers voluntarily exchange goods and services, like in the cell phone industry, based on voluntary exchange. However, when such exchanges affect third parties (externalities), they can cause market failures if not addressed.
Step-by-step explanation:
Any arrangement in which buyers and sellers voluntarily interact to exchange goods and services based on price is referred to as a market. The cell phone industry is a prime example of private markets facilitating this kind of exchange, efficiently determining what goods to produce, how to produce them, and who receives them. The backbone of such interactions is the concept of voluntary exchange, which holds that these transactions benefit both parties involved, the buyer and the seller.
When a voluntary exchange negatively impacts a third party who is neither the buyer nor the seller, this is known as an externality. Externalities can be either positive or negative and are not accounted for in the cost or benefit to the buyer or seller. In the sense of market interaction and efficiency, addressing externalities is important to prevent market failures and ensure that all costs and benefits are considered.