Question

What is an example of externalities

Answer 1

An externality is the positive or negative consequences of an economic activity that falls on the 3rd party who is not involved in that activity. Externality is of two types - positive externality and negative externality.

An example of positive externality is Education. With education, the skills and knowledge learned from university can benefit the other people (who was not involved in that educational activities) in various ways.

An example of negative externality is Smoking. Your activity of smoking can disbenefit others and cause them suffer from the smoke you emit, and these people are not even involved in your smoking activity.