Production Externality

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.

BREAKING DOWN '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. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  2. Working Capital

    Working capital is a measure of both a company's efficiency and ...
  3. Production Efficiency

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

    An economic term to describe the inputs that are used in the ...
  5. Gross Production Tax

    A state tax imposed on companies that generate revenues by depleting ...
  6. Reproduction Cost

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

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Investing Basics

    Economic Indicators That Do-It-Yourself Investors Should Know

    Understanding these investing tools will put the market in your hands.
  3. Options & Futures

    Harvesting Crop Production Reports

    Find out what grain investors need to know to analyze USDA reports.
  4. Economics

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  5. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  6. Economics

    Industries That Thrive On Recession

    Recessions are not equally hard on everyone. In fact, there are some industries that even flourish amid the adversity.
  7. Economics

    What is a Complement?

    A good or service that’s used in conjunction with another good or service is a complement.
  8. Economics

    Negative Interest Rate Policy (NIRP)

    A negative interest rate policy is an unconventional monetary policy tool in which nominal target interest rates are set below zero.
  9. Economics

    A History Of U.S. Monopolies

    Here are a few of the most notorious monopolies in U.S. history.
  10. Economics

    Understanding the American Dream

    The American dream is the belief that anyone, regardless of where they’re born or into what class, can attain their own version of success.
RELATED FAQS
  1. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
  2. Is North Korea a developed country?

    North Korea is one of the poorest and least developed countries in the world. It is far from a developed country. Because ... Read Full Answer >>
  3. Is Mexico a developed country?

    As of 2015, Mexico is not a developed country. However, it beats the majority of its peers in the developing world on most ... Read Full Answer >>
  4. Is China a developed country?

    Despite having the world's second-largest economy and third-largest military, China is still, as of 2015, not classified ... Read Full Answer >>
  5. Is Greece a developed country?

    Greece is a developed country by most meaningful metrics. However, its financial struggles have been well documented in the ... Read Full Answer >>
  6. Is the Philippines a developed country?

    The Philippines is not a developed country. The nation falls behind on every one of the most common metrics used by economist ... Read Full Answer >>
Hot Definitions
  1. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  2. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  3. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  4. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center