Key Terms: Externalities: the spillover effect of consumption or production. They affect others and can be positive and negative Private benefit: The reward to individuals or firms of an economic activity such as consumption or production Private cost: The cost of an economic activity to individuals and firms Social benefit: the benefit of an economic activity to society as well as to the individual or firms Social cost: the cost of an economic activity to society as well as the individual or firms Positive externality: Is a benefit that is enjoyed as a result of an economic transaction (by individuals, organisation or property owner) E.g you are able to educate other people and therefore they benefit as a result of your education. Negative Externality: is a cost that is suffered as a result of economic transaction (by individuals, consumers etc) E.g If you play loud music, your neighbour may not be able to sleep