Definition
- Positive externality
- A positive externality is a benefit that spills over from an exchange to a third party, who enjoys it without paying for it.
- Not to be confused with: 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.
Test yourself
What is the difference between positive externality and negative externality?
A positive externality gives a third party a benefit; a negative one puts a cost on them.