Economic cost is the sum of all expenditures involving items that have been valued by a single person or organization. Externalities, according to economics, are costs formed when one person burdens or helps another without offering them any financial incentive to do so (Lityński & Hołuj, 2021). As a consequence, both desirable and undesirable externalities can be emphasized, whether they are produced during manufacturing or during utilization (Lityński & Hołuj, 2021). It is crucial to consider how people use and profit from commodities when detecting externalities, and it is acceptable to draw the conclusion that even when externalities do present, government action is not always necessary (Lityński & Hołuj, 2021). It will not be obligatory to have externalities that result in socially approved costs before creating public policy (Lityński & Hołuj, 2021). Concerning an original and economics-based explanation, it is feasible to state that externalities are expenses or benefits that are transferred to a third party or external member but are not included in the total cost.
Externalities, as any other term in economics and economic theory, can be linked to potential examples, both real and hypothetical. For instance, a facility that contaminates the ecosystem generates additional costs to society. At the same time, those expenditures are not factored into the product that becomes the final output of that factory. Externalities seemed to be handled by municipal governments and public authorities and people who were impacted by them. As a matter of fact, for example, cities and local communities were liable for paying for the negative impacts of pollution from a nearby plant, but the citizens were obligated to pay for any associated medical expenses. An instance of a hypothetical positive externality is when innovative and new software elaborations boost a company’s performance.
Reference
Lityński, P., & Hołuj, A. (2021). Macroeconomic perspective on urban sprawl: A multidimensional approach in Poland. Land, 10(2), 116.