Overview
Externalities are significant economic concepts that describe the costs or benefits that affect third parties not directly involved in a transaction. They can lead to market failures when these external costs or benefits are not reflected in market prices, resulting in inefficient resource allocatio...
Key Terms
Example: Pollution from a factory affects nearby residents.
Example: Vaccination reduces disease spread in the community.
Example: Air pollution from cars affects public health.
Example: The social cost of pollution includes health care costs.
Example: Education provides benefits to both individuals and society.
Example: When pollution is not accounted for in production costs.
Related Topics
Public Goods
Goods that are non-excludable and non-rivalrous, leading to challenges in provision and funding.
intermediateCost-Benefit Analysis
A method used to evaluate the total expected costs versus benefits of a project or decision.
intermediateEnvironmental Economics
The study of economic impacts of environmental policies and the management of natural resources.
advancedKey Concepts
positive externalitiesnegative externalitiessocial costmarket failure