Production Externality

AAA

DEFINITION of 'Production Externality'

Costs of production that must ultimately be paid by someone other than the producer of a good or service. Production externalities are usually unintended and can have economic, social and environmental side effects. Production externalities can be measured in terms of the difference between the actual cost of production of the good and the real cost of this production to society at large.

INVESTOPEDIA EXPLAINS 'Production Externality'

There are many examples of externalities, such as pollution and depletion of natural resources. A logging company can pay for the cost of a tree that they remove, but the cost of replacing an entire forest once it is gone is exponentially more than the sum of its lost trees. Freeway traffic jams and health problems that arise from breathing secondhand smoke are further examples of externalities in production.

RELATED TERMS
  1. Working Capital

    This ratio indicates whether a company has enough short term ...
  2. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  3. Gross Production Tax

    A state tax imposed on companies that generate revenues by depleting ...
  4. Production Efficiency

    1. An economic level at which the economy can no longer produce ...
  5. Factors Of Production

    An economic term to describe the inputs that are used in the ...
  6. Reproduction Cost

    The costs involved with identically reproducing an asset or property ...
Related Articles
  1. Economics

    Economics Basics

  2. Investing Basics

    Economic Indicators That Do-It-Yourself ...

  3. Options & Futures

    Harvesting Crop Production Reports

  4. Economics

    A Practical Look At Microeconomics

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center