Define externalities.give an example of negative …

An externality is said to occur when the actions of one entity bears an impact on other entities. These externalities can be positive as well as negative. Negative externalities occur when the consumption or production of a good causes a harmful effect to a third party. It is an action of one person adversely affecting the others.
Examples of negative externalities:
1) If you play loud music at night your neighbour may not be able to sleep.
Thus, by endangering and affecting the life of the people living in the surrounding areas, it reduces the overall welfare of the society and creates negative externality.
2) If you produce chemicals and cause pollution, then as a side effect, local fishermen will not be able to catch fish. This loss of income will be the negative externality. The hazardous chemicals in water bodies and the surroundings adversely affect the health of the people. Also, it contributes to the environmental degradation along with increasing the pollution levels in the country.