Quick Definition

An externality is an economic term for a cost or benefit that affects a party who did not choose to incur that cost or benefit.

Examples

• 1A factory emitting pollution that affects the health of nearby residents.
• 2A homeowner planting an extensive garden, thereby improving the neighborhood's appeal and increasing property values.
• 3A company providing employee training that increases the overall skill level within the local job market.
• 4A public park that increases nearby property values but is maintained at the expense of local taxpayers.

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