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Explain the term externality and outline any externalities, negative or positive, that might be generated by...

Explain the term externality and outline any externalities, negative or positive, that might be generated by running a coffee cafe shop

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Answer #1

When the action of some individual or firms creates some benefits or loss for some individuals who does not pay for the benefit or does not get anything for the loss which they suffer, it is called the externality.

When the action of some individual or firms creates a loss for some individuals who does not get anything for the loss which they suffer, it is called the negative externality.

In the case of running the caffee shop, the negative externalities arises when the some consumers smoke, then it creates negative externalities to the owners as well as another consumers health who does not smoke because the people who suffer with the smoke does not get anything for the loss which they suffer.

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