A negative externality is a cost caused by a third party as a side effect of an economic unit.
Explanation:
The first and second parties are suppliers and customers, and third parties include any individual, entity, property owner or asset that is partially involved in the transaction.
Externalities are also called over-spill consequences, and negative externalities are also considered "external expenses." Externalities usually occur when possession of property or commodity assets has not or is unknown.
For example, nobody owns the oceans and is not privately owned by anybody, so ships can destroy the environment in the sea.
Negative effects can occur on third parties if certain commodities such as demerit products are used. Common examples involve smoking and drinking which can generate passive smoking, excess alcohol, and pollution.
