The benefit enjoyed by or cost imposed on a third party that is not directly involved in the production or consumption of a good or service is called a(n)

The benefit enjoyed by or cost imposed on a third party that is not directly involved in the production or consumption of a good or service is called an externality. Externalities can be either positive or negative.

1. Positive Externalities occur when a third party benefits from a transaction they are not involved in. For example, a well-maintained garden can improve the neighborhood's aesthetic appeal, benefitting the community.

2. Negative Externalities arise when a third party suffers costs due to a transaction they are not part of. A classic example is pollution from a factory, which affects the health of nearby residents.

Understanding externalities is crucial in economics as they can lead to market failures if not addressed, influencing policy decisions and economic interventions.