An externality is an effect that an economic transaction has on a party who is not involved in the transaction.[1] Externalities deter a market from producing the equilibrium quantity and price for a good for service. Externalities produce inefficiencies in markets and can eventually produce a market failure if not internalized in time.
Externalities can be either positive or negative:
Lyndon G., Jason Donev
Last updated: September 17, 2016
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