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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

QualificationExamRelationshipPeriod
ACCA APM Direct September 2026–June 2027
ACCA PM Supporting September 2026–June 2027