externality (C2)

noun

Pronunciation: /ˌɛk.stɜːrˈnæl.ə.ti/

Definition

An economic consequence of an activity that affects other parties without being reflected in the cost of the goods or services involved.

Examples

• Pollution is a classic example of a negative externality because the producer does not bear the full cost of environmental damage.

• Positive externalities occur when a neighbor's well-maintained garden increases the property value of all surrounding homes.

• Governments often impose taxes to internalize the cost of a negative externality like traffic congestion.

Synonyms of externality

Words with a similar meaning to externality:

• side effect
• consequence
• spillover
• repercussion

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