what constitutes an externality

An externality is an economic cost or benefit experienced by someone other than the individual directly making the decision to undertake an economic activity. It affects people, animals, plants and the environment, and can be both positive (beneficial) and negative (harmful). Examples of negative externalities include the pollution created by businesses, the health impacts of smoking and the noise pollution caused by factories. Positive externalities include the health benefits of eating nutritious food, the educational benefits of attending college and the increased safety of living in a more secure neighborhood.