Externalities

Externalities are the unintended consequences of economic activity that affect others who aren’t directly involved - these effects can be either positive or negative, leading to added benefits or unexpected costs for third parties.

When the impact is beneficial, we talk about positive externalities. When it causes harm or additional costs, they’re called negative externalities.

• Positive Externalities
  These are the “bonus effects” of an activity - unpaid benefits that spill over to others. For example, a company that invests in green spaces not only improves its own surroundings but also boosts the quality of life in the neighborhood.
• Negative Externalities
  These occur when the actions of a business or individual create costs for others - without bearing the consequences themselves.

  Take pollution from a steel or oil company, for instance. It’s a textbook example of a negative externality, especially for tourism businesses in the same area that suffer from the degraded environment.

And so on - externalities are all around us, shaping our economy and our daily lives in ways we often don’t see.