What are Negative Externalities?
- Negative externalities are unintended and harmful side effects or consequences that result from an economic activity and affect third parties who are not directly involved in that activity. These externalities often impose costs on society that are not accounted for by the parties involved in the activity.
How Do I Remember It?
- Think of negative externalities as the hidden costs that sneak into the community.
- It’s like when a factory pollutes the air, and people living nearby get sick. The factory owners might not consider these extra problems, but they’re negative externalities – the unexpected and harmful effects that spill over to others.
Real World Example
- Consider a fossil fuel plant emitting pollutants into the air. The negative externality here is the impact on the health of nearby residents who didn’t participate in running the plant. The costs of healthcare and reduced well-being for these residents represent negative externalities associated with the fossil fuel plant’s activities.
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By: Ryan Aquino
