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Unit 1
Externalities and Public Goods
Negative Externalities
Description
A negative externality occurs when an economic transaction imposes unintended costs on third parties who are not directly involved in the market transaction. These external costs are not captured in the market price.
Negative Externalities and Market Failure
Consider a chemical manufacturing plant that produces ind...
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Transcript
A negative externality is a cost suffered by an unrelated third party due to an economic transaction.
The costs created by negative externalities are not reflected in the market price of a good.
Consider a coal-fired power plant. It sells electricity at a price that covers its private costs, such as fuel, labor, and capital. Howeve...
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