Word of The Day – Externalities

Externalities – social costs (or benefits) from private enterprises

Definition: An externality is a cost or benefit to a person (or persons) from an activity they did not choose to participate in or plan on paying for.

Examples:

Tiny Positive Externality – a neighbor gives your house a better view by trimming the branches on a tree on their property that was blocking your view.

Huge Negative Externality – a nuclear plant has a meltdown and releases radiation that affects neighboring cities and towns (or even neighboring countries).

Synonym: transaction spillover

Related term: commons

Copyright © 2011 Nancy K. Humphreys

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