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Externality
Externality
When the action of one individual or entity affects another individual or entity. The action can impose costs (negative externality) or benefits (positive externality). Water pollution is an example of negative externality and a public campaign of vaccination is an example of a positive externality.
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© 2008 NESTA
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Comments on this article
Added: 17/03/2008 3:50pm
Brendan Dunphy
In economics, an externality is an impact (positive or negative) on any party not involved in a given economic transaction. It is important to recognise the 'not involved' i.e. typically not the seller or the buyer or the middleman, therefore not 'accounted for' in economic terms. A vaccination campaign is not an example of a positive externality - the people who do not get vaccinated but get the benefits (reduced chance of infection)because almost everyone else does is the example!