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If the shutter speed of a photograph is too slow, often fast action will not be captured in the frame and the print will be blurred or missing the image all together. By analogy an economic externality is similar to a photograph with poor exposure in that something tangible is not captured, in this case by the accounting system, as opposed to the photographic plate or image.

By going unnoticed, neither the positive results nor the costs of a commercial transaction are accounted for properly. Thus externalities can be positive --adding to the value of a transaction-- or negative, by detracting from an exchange's value in a business deal.

Since any identifiable externality is outside of all the considerations taken into account, the term used is taken from external, being outside of the details used to account for the value of commercial exchanges.


Negative such as pollution, contamination, exposure to radiation or chemical irritant resulting in health problems, noxious odors, or an absence of essential public services.

Positive such as any desirable feature not readily associated with the value of a property or artifact’s intended use. These may be a desirable view or accessory not included in the purchase price such as a well-kept neighborhood, ease of access to shopping, an informed and courteous staff, or the ability to afford the maintenance and upkeep of the item purchased.

Any externality is a known –often estimated amount—that is not precisely tallied when detailing the credits or debits of a financial matter. Further details.

When describing the business deal, externalities are easily ignored because they certainly do not figure in the bottom line.


Phantom arm

The right arm is evident but the left arm of the soccer player photographed above appears blurred to the point of disappearing from view.


An example in New York City's watersheds

• defined as a type of market failure

• economists' examples



Economic concepts