Externality

An externality is a cost or benefit of an activity that affects people not directly involved and is not fully reflected in its market price.

Marginal social cost: The additional cost to society of producing one more unit of a good or service. It adds external costs to producers’ marginal costs.
Carbon tax: A tax on greenhouse-gas emissions or the carbon content of fuels. It prices climate damages that emitters otherwise impose on others.
Public goods problem: The tendency for non-excludability and non-rivalry to cause underprovision through free riding. It can involve external benefits, but arises from a good’s exclusion and rivalry properties.
Air pollution: The contamination of the atmosphere by harmful substances or particles. Emissions impose health and environmental costs on people outside the transactions that produce them.
Marginal social benefit: The additional benefit to society from consuming or producing one more unit. It includes benefits received by people outside the market transaction.
Tradable emissions permit: A transferable authorization to emit a specified amount of pollution under a cap. Permit markets make polluters face a price for emissions.
Information asymmetry: A situation in which parties to an exchange have unequal information about relevant characteristics or actions. It distorts exchange through hidden information rather than effects on uninvolved parties.
Noise pollution: Unwanted or harmful sound that disrupts health, activity, or quality of life. Noise from transport or industry affects nearby people who are not part of the activity.
Pigouvian tax: A tax designed to make private decision-makers account for external costs or benefits. It can align private incentives with the social cost of a harmful spillover.
Vaccination: A medical intervention that stimulates immunity against an infectious disease. Vaccination can protect people beyond the person receiving it by reducing transmission.

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