External cost

In economics external cost refers to a negative side-effect of an economic transaction, an act of exchange, consumption, or production. It is the opposite of an inefficiency.

Technical external costs (such as pollution) directly affect the lives of others, while pecuniary external costs work through markets. As an example of the latter, if a major employer in a town goes bankrupt, it imposes unemployment, decreased income, and the like on some or many people in the town.

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