Define externalities. Give an example of …

Externalities refers the benefits or harms a firm or an industry causes to an individual or the society. The externalities can be positive as well as negative. A negative externality is when the action of one industry or a firm adversely affects the others. For instance, the dumping of hazardous chemicals in the water bodies by the factories is a negative externality. This is because the dumping of hazardous chemicals in water bodies and the surroundings adversely affects the health of the people. Also, it contributes to the environmental degradation along with increasing the pollution levels in the region. 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.

Externalities refer to the benefits or harms that a firm or an individual causes to another for which they are not paid.
For example, river pollution created by an oil refinery has disastrous effects on aquatic life.
It reduces the overall welfare of the society and create negative externality.