What is Externality?
[[File:Smoke Pollution.jpg|thumb|Air pollution is an externality]] In [[economics]], some decisions affect third parties. These parties can be affected by the decision positively or negatively, but this influence is involuntary. This is known as an '''externality''', or an '''external effect'''. The problem with externalities is that no one pays for the [[cost]] of these effects. Usually, they are not part of the decision process. Externalities are often a form of [[market failure]]. In many cases, actors like states need to become active. An example of an externality is [[pollution]]. One way to solve this is to introduce [[Tax|taxes]] on the [[Good (economics)|goods]] that cause the pollution, for example [[carbon dioxide]], which is the one of the causes of [[global warming]]. With concepts such as [[emissions trading]], these externalities can again become part of the market system (and are no longer external). [[Category:Economics]]