Externality

Loading the player...

DEFINITION of 'Externality'

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

BREAKING DOWN '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.

RELATED TERMS
  1. Uneconomic Growth

    When economic growth produces negative external consequences ...
  2. True Cost Economics

    An economic model that seeks to include the cost of negative ...
  3. Impact Fee

    A fee imposed on property developers by municipalities for the ...
  4. Land Rehabilitation

    A re-engineering process that attempts to restore an area of ...
  5. Pigovian Tax

    A special tax that is often levied on companies that pollute ...
  6. Marginal Social Cost - MSC

    The total cost to society as a whole for producing one further ...
Related Articles
  1. Economics

    Understanding Externality

    An externality is a consequence of an economic activity that is experienced by unrelated third parties.
  2. Economics

    Economics Basics

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

    Sinful Investing: Is It For You?

    Sin stocks may seen outright undesirable to some, but these "naughty" industries bring stable returns - even in hard times.
  4. Mutual Funds & ETFs

    Socially Responsible Mutual Funds

    It is possible to avoid unethical investments and still profit from mutual funds. Find out how!
  5. 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.
  6. Economics

    What is a Complement?

    A good or service that’s used in conjunction with another good or service is a complement.
  7. 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.
  8. Economics

    A History Of U.S. Monopolies

    Here are a few of the most notorious monopolies in U.S. history.
  9. 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.
  10. Economics

    The World’s Top 10 Economies

    The world’s largest economy is the United States in terms of nominal GDP.
RELATED FAQS
  1. What are some of the drawbacks of industrialization?

    In economic history, industrialization is the social and economic transformation of the human group from an agrarian society ... Read Full Answer >>
  2. Do negative externalities affect financial markets?

    In economics, a negative externality happens when a decision maker does not pay all the costs for his actions. Economists ... Read Full Answer >>
  3. Why do some companies in the insurance sector engage in reinsurance?

    Some companies in the insurance sector engage in reinsurance because they want to reduce risk. Reinsurance is basically insurance ... Read Full Answer >>
  4. How do I decide whether a credit card offer is a good deal or not?

    Externalities lead to market failure because the price equilibrium does not accurately reflect the true costs and benefits ... Read Full Answer >>
  5. Who developed the theory of economic externality?

    British economist Arthur C. Pigou advanced the theory of economic externalities, which he most notably expressed in his book, ... Read Full Answer >>
  6. How does a government decide what industries to subsidize?

    Different rationales exist for the provision of public subsidies; some are economic, some are political and some come from ... Read Full Answer >>
  7. What are the differences between internal and external economies of scale?

    Internal economies of scale are firm-specific, or caused internally, while external economies of scale occur based on larger ... Read Full Answer >>
  8. What are some examples of economies of scale?

    Economies of scale occur whenever a firm's marginal costs of production decrease. They can result from changes on a macroeconomic ... Read Full Answer >>
Hot Definitions
  1. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  2. 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 ...
  3. Ponzimonium

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

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  5. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
Trading Center