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Economic Terms

All   0-9   A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

External Economies of Scale

Decreasing average costs due to the positive externalities of an industry or economy growing in size.

Below shows the effects of this type of economies of scale on a firm's long-run average cost curve. For instance the development of infrastructure or the benefits of an expanded local supply network may lead to lower average costs.

External economies/diseconomies

Economies and diseconomies of scale that arise because of the growth of the market as opposed to the firm.

External Growth

External growth is the rate of growth of business, sales expansion by increasing output and business reach by acquiring new businesses by way of mergers, acquisitions and take-overs.

As the diagram shows below there are three different variants of external growth: horizontal integration, vertical integration and conglomerate integration.

External tariff

A tax on goods imported from other countires.


Costs arising from production or benefits arising from consumption  that are experienced by third parties and are not reflected in the price and output level determined by the market.


Is a cost/benefit that is imposed on third parties i.e. economic agents who were not involved directly in the production/consumption of the good.

The presence of an externality in a market signals market failure and therefore society's welfare is not being maximised. 

There are four different forms of externalities that can arise in an economy:

  • Negative Production Externalities
  • Positive Production Externalities
  • Negative Consumption Externalities
  • Positive Consumption Externalities

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