negative externality

Definition

Occurs when a product or decision costs the society more than its private cost. It is generally viewed as a failure of the market because the level of consumption or production of the product is higher than what the society requires. Car pollution is an example of negative externality; as a driver of a car, you don't account for the costs of the air pollution created by the car but the society is paying for the costs of air pollution.

Use this term in a sentence

  • The negative externality was unable to be ignored by the chief executive officer so he ended the business process as we knew it.

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  • There may be a negative externality to your decision that you will have to live with if you go ahead and make it anyways.

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  • The woman thought that she would have no issue living next to a paper mill; however, she soon found the negative externality of horrid smells and pollution to be too much.

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