what are externalities and why are they so important in everyday life?
In: 14
“Externalities” are side effects your economic activity creates that impose costs or problems on someone else or society at large.
Most commonly this refers to things like pollution or CO2 emissions. The river may be a cheap place for your factory to dump toxic waste, but everyone who uses the river is affected by the ruined water supply and ecological damage. Gasoline cars, trucks and planes are convenient for getting you and your stuff from point A to point B, but they put CO2 into the atmosphere and increase global temperature.
These kinds of things are frequently the subject of government regulation, either to ban the externality producing activity outright (make it illegal for factories to dump toxic waste in the river), or to make people pay to have the externality removed (a tax on cars or gasoline that’s used to pay for planting trees or other CO2 reducing activity).
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