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What Is an Externality? How Do Positive and Negative Externalities

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Essay

What is an externality? How do positive and negative externalities differ in their effects? How can government action correct positive and negative externalities?


Definitions:

Outstanding Shares

The total number of shares of a corporation's stock that are currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares.

Equity Method

An accounting technique used to record investments in other companies when significant influence is held but not complete control.

Revenue from Stock Investments

Income earned from the ownership of shares in other companies, including dividends received and gains from sales of these shares.

Investee

A company or entity in which an investor holds a minority stake, not sufficient to exercise control over it.

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