Externalities - An externality is such type of outcome which is not directly incureed by the producer but its consequences are incurred by society as a whole. The externalities can be negative as well as positive.
Negative externality- A externality that has a negative and harmful effect on society, as well as firms, are called negative externalities.
- For eg., A firm polluting the environment to save the cost of production will have negative consequences on society as a whole.
Positive externality - An outcome of the decisions and execution of a company that has led to positive consequences for both company and the society.
- For eg., the perfect example of positive externalities is the research and development work of any company. The research and development benefits not only the company to enhance its efficiency but it also benefits society by gaining the knowledge from the research, employment from work, etc,
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