Externality

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DEFINITION of 'Externality'

A consequence of an economic activity that is experienced by unrelated third parties. An externality can be either positive or negative.

INVESTOPEDIA EXPLAINS 'Externality'

Pollution emitted by a factory that spoils the surrounding environment and affects the health of nearby residents is an example of a negative externality. An example of a positive externality is the effect of a well-educated labor force on the productivity of a company.

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