Externalities

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Externalities are known as the third party or side effects which affect business decisions. Basically externalities occur externally or outside the market, those who are affected are not involved with the decision. These effects are created from production or consumption goods and services. Externalities are divided into two categories: Negative externalities and Positive externalities. Positive externalities are the benefits to third party of business activity which means the effects benefit the business. Negative externalities in contrast are the negative effects of business activity; these effects are unfavorable to the business or the business causes these effects.

Externalities have a huge impact on business development. Business development varies according to externalities. Positive externalities are most likely to benefit the business and increase development whereas negative externalities are more likely to contract business development or the business might encounter ethical issues depending on the externality.

A positive externality include new infrastructure, research and development, research in technology, education, health provisions, increased employment, to name a few.

New infrastructure will benefit the business and allow the business to grow and develop. Other positive externalities such as research and development will not only be useful to the business as