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externalities

Definition

Activities and conditions whose benefits (called external economies) and costs (called external diseconomies) are not reflected in the market price of goods and services. The primary feature of externalities is that one entity's action directly or indirectly changes the options available to other entities. For example, widespread benefits of an invention (such as electricity generation) accompanied by the widespread hazards of pollution (such as destruction of ozone layer). Externalities are an important consideration in cost-benefit analysis.

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