Externalities

An externality is a cost or benefit from an economic activity that falls on someone who was not part of the decision to engage in that activity, like a factory's pollution harming nearby residents (a negative externality) or a homeowner's well-kept garden raising a neighborhood's property values (a positive externality). Because the person making the decision does not bear the full cost, or receive the full benefit, of their own choice, markets left alone tend to produce too much of an activity with a negative externality and too little of one with a positive externality, one of the main reasons governments intervene with taxes, subsidies, or regulation.

This explanation is AI-generated and can occasionally be wrong. 🚩 Report