Externality
An externality is a cost or benefit of an activity affecting parties other than the decision-maker that is not fully reflected in the activity’s private price or payment. Environmental and social effects can therefore be missed by a narrow company-cost calculation. Some may later become internal costs through regulation, litigation or market response. State the stakeholder and boundary rather than assuming every impact is already a recognised expense.
Worked example
A factory’s emissions create health or nuisance costs for nearby residents even when the company pays no equivalent charge at the time.
Common mistake
A cost outside the company’s ledger is not necessarily economically irrelevant; it may affect stakeholder outcomes and future business risks.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | APM | Direct | September 2026–June 2027 |
| ACCA | PM | Supporting | September 2026–June 2027 |
