Definition
- Negative externality
- A negative externality is a cost that an exchange between a buyer and a seller imposes on a third party who is not part of the exchange.
- Not to be confused with: Positive externality
- A positive externality is a benefit that an exchange between a buyer and a seller brings to a third party who does not pay for it.
Test yourself
What is the difference between negative externality and positive externality?
A negative externality puts a cost on a third party; a positive one gives a third party a benefit.