Externalitiesare costs or benefits of market transactions not reflected inprices.
Negative externalitiesare costs to thirdparties.
Positive externalitiesare benefits to thirdparties
Externalities and Efficiency
Themarginal external costis thedollar value of the cost to thirdparties from the production or consumption of an additional unitof a good. These occur whenmarket transactions for a goodproducenegative externalities.