Question:
Define externalities.
Define externalities.
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Externalities are non-market impacts of economic activities on society, often requiring government intervention.
Updated On: Jan 30, 2025
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Solution and Explanation
Externalities refer to the unintended side effects of economic activities on third parties that are not directly involved in the production or consumption of goods or services.
These can be positive (benefits) or negative (costs) and are not accounted for in market transactions.
Example:
Positive: Planting trees improves air quality.
Negative: Factory pollution harms nearby residents.
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