Economic Externalities

Externalities refer to transactions that exist between 2 parties where either party imposes a cost or confers benefits on a third party and there is no feasible way of compensating the effected party. They are the impact of one person’s actions on the well being of another.


Externalities can be classified into two distinct groups: positive and negative. Positive externalities as the name suggests creates a beneficial effect on bystanders. A negative externality creates an adverse effect on bystanders. There are many examples of externalities in the world we live in. These include pollution as a result from car emissions (negative externality), historic building restoration (positive ext...