An externality is a benefit that is enjoyed by a third-party or a loss incurred by a third-party as a result of an economic transaction. Third-parties include any individuals and organizations that are indirectly affected. A positive externality occurs when a third party gains as a result of production. Examples of positive externalities are health care, security and education. A negative externality is a cost that is suffered by a third party as a result of an economic transaction. Examples of negative externalities are alcohol, smoking of cigarettes and pollution.
A positive production externality occurs when a third party gains as a result of production.
A positive consumption externality occurs when consuming a good gives a benefit to others. For example, attending university gives benefit to rest of society where you may be able to teach others.
Negative externalities in production will be pollution to the environment from the production of goods.
Negative externality in consumption is when certain goods are consumed, such as demerit goods, negative effects can arise on third parties.