EXTERNALITY Meaning and
Definition
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Externality is an economic concept that refers to the unintended or external impact imposed on individuals or parties who are not directly involved in a particular transaction. It is the effect of an activity or decision by one party, either positive or negative, on the welfare of others. These external impacts can occur in various forms, such as environmental pollution, congestion, noise, or social costs.
In the context of economics, externalities occur when the production or consumption of goods and services generate costs or benefits that are borne or received by individuals or groups who are not involved in the market exchange. For instance, a factory emitting pollutants that harm the surrounding community's health is an example of a negative externality. On the other hand, if a company invests in research and development, the knowledge generated may spill over to benefit other firms or industries, which is known as a positive externality.
Externalities can result in market inefficiencies since the costs or benefits affecting third parties are not factored into the price mechanism. Consequently, resources may be misallocated, leading to suboptimal outcomes or the need for government intervention. To address externalities, policymakers may implement regulations, taxes, subsidies, or property rights to internalize the spillover effects and align private costs and benefits with social costs and benefits.
Overall, externality refers to the impact, positive or negative, that an action or decision has on individuals or parties not directly involved in the transaction, often necessitating consideration and regulation to promote economic efficiency and social welfare.
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Etymological and pronouncing dictionary of the English language. By Stormonth, James, Phelp, P. H. Published 1874.
Common Misspellings for EXTERNALITY
Etymology of EXTERNALITY
The word "externality" comes from the Latin word "externalis", which means "external" or "outward". The Latin word is derived from the combination of "exter", meaning "out (of)", and the suffix "-alis", denoting relationship or connection. "Externality" was first used in the English language in the mid-19th century to refer to the concept of an economic or social consequence that affects individuals or entities outside the direct scope of an action or transaction.
Similar spelling words for EXTERNALITY
- external drive,
- external angle,
- exothermal,
- external ear,
- external organ,
- exterior,
- external gill,
- externalize,
- externally,
- external,
- exterritorial,
- externalise.
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