Externality is when one agent’s actions directly affect another agent at the same time not altering the price of the good or service. Two types of externalities are known, negative and positive externality. Negative externality is the case when one agent’s actions cause the second agent to lose welfare, and the second agent is not compensated for that. The opposite takes place with positive externalities. When one agent’s actions cause the second agent’s welfare to increase, and if he/she is not compensated for that, then it is known to be a positive externality.
One example of ...
