Question

Discuss the concept of externalities. What do externalities have to do with the environment?

Answer 1

Externality:

It includes both external cost and external benefit. In other words, there can be negative or positive externality. In the case of negative externality, action of an economic agent create cost for others. For example: Smoker causes cost for non smoker.

On the other hand, in the case of positive externality action of an economic agent create benefits for others for which it doesnot receive anything in return. The term externalities refers to both external cost and external benefit.

Externalities have positive and negative effect on the environment. When factories emit its waste in rivers then it adversely affect environment.