|Definition||A cost or benefit that isn't reflected in price.|
|Related Concepts||Tragedy Of The CommonsTyranny Of Small Decisions|
What are Externalities?
John Spacey, updated on April 14, 2018
An externality is a cost or benefit that isn't reflected in the price paid for a good or service. For example, a manufactured product may not include the cost of generated air pollution to health and quality of life. In other words, the cost of the air pollution may be born by those who live near the shoe factory not those who buy the shoes. Air pollution is also known to have a negative impact globally, a cost that often isn't paid by those who create it. Externalities can also be benefits such as a bee keeper whose bees pollinate nearby crops free of charge.
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