An externality involves outcomes affecting those who didn't choose to be involved. Residents didn't choose the new highway, but noise pollution is an externality they face.
Pro Tip 2/3
Not Always Bad
Externalities can be positive, like a park that beautifies the area for all. The new park's beauty is a positive externality for the neighborhood.
Pro Tip 3/3
Public Policy Relevance
Governments often step in to correct negative externalities through regulations. To reduce traffic congestion's externality, the city introduced a carpool policy.