In economicsexternal cost refers to a negative side-effect of an economic transaction, an act of exchange, consumption, or production. It is the opposite of an external benefit and is often called a "negative externality." In a voluntary economic transaction between person X and Y, an external cost may be imposed involuntarily on individual Z, violating their freedom of choice. Buyers bargain for good prices while sellers put forth their best front in Chichicastenango Market, Guatemala. ... This page is a candidate to be moved to Wiktionary. ...
The full cost of an activity is often called the social cost and includes the cost to the individual cost plus the external or spill-over cost. For example, if I buy paper, the full cost includes not only the price I pay for it (individual cost), but also the pollution produced by the paper-mill (the external cost).
Not only does producing something sometimes involve an external cost, but consumption can also have this kind of cost: consider the cost to you if your neighbor plays his or her music too loud at 2 a.m.
If the production of an item involves an external cost, even a totally competitive market suffers from allocative inefficiency. The term inefficiency has several meanings depending on the context in which its used: Economic inefficiency refers to a situation where we could be doing a better job, i. ...
Technical external costs (such as pollution) directly affect the lives of others, while pecuniary external costs work through markets. As an example of the latter, if a major employer in a town goes bankrupt, it imposes unemployment, decreased income, and the like on some or many people in the town. Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. ... In economics, a person who is able and willing to work at prevailing wage rate yet is unable to find a paying job is considered unemployed. ... It has been suggested that Unearned income be merged into this article or section. ...
Opportunity cost, also referred to as economiccost is the value of the best alternative that was not chosen in order to pursue the current endeavour--i.e., what could have been accomplished with the resources expended in the undertaking.
Its externalcosts (also called externalities), in contrast, are the costs that people other than the buyer are forced to pay as a result of the transaction.
A psychic cost is a subset of social costs that specifically represent the costs of added stress or losses to quality of life.
From the perspective of anybody affected by the externality, it is either a negative factor in their lives, as with obnoxious smell or pollution or a boon, as with the other's pretty clothes.
The value of the effects of the externality are likely not something that can be easily calculated in a technocratic way by economists or social planners, since they reflect the ethical views and preferences of the entire population.
The marginal private cost is less than the marginal social or public cost by the amount of the externalcost, i.e., the cost of the smoking stacks and water pollution.
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