what are externalities? can you please give the exact definition for it?

Dear Student,

Externalities refer to the cost or benefit of an activity by an economic agent for which it does not pay a price. For example, a factory producing goods emits poisonous smoke in the environment and dumps wastes into the water bodies causing air pollution and water pollution. In this case, the externality implies the negative effect on the health of the human beings and aquatic animals. 

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