Externalities

The TL;DR on externalities: the unintended effects of things from economic activity...things that happen to people who have nothing to do with the economic activity. Like when a bird poops on your head. You were just in the wrong place at the wrong time. It didn’t have anything to do with that bird.

For instance, factories pump out not only products, but also a lot of pollution, which does really bad things in the geographic area surrounding the factory: people’s health declines, their healthcare bills go up, and their property prices go down (because who wants to live next to a smokestack?). Pollution is a negative externality: it affects people who have nothing to do with that factory. Oftentimes, governments step in to try to remedy effects of negative externalities from private companies that negatively impact the public.

Technically, positive externalities can exist too. For instance, if you lived next to a flower shop, you’d have lovely flower smells constantly wafting into your home...for free. If all your neighbors keep their yards super nice just because they’re into it, that’s probably positively impacting your home’s price (or, your landlord’s home’s price). Usually nobody makes too much of a fuss about positive externalities...the people benefiting are incentivized to stay quiet. While much of the focus is on negative externalities (since those suck), it’s still important to remember there are positive externalities as well.