An international externality occurs when spillover effects from market activities within one country affect third parties located in other nations.

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An international externality is a type of externality that occurs when the effects of economic activities spill over national boundaries, affecting people and businesses in other countries. Examples of international externalities include air and water pollution, global climate change, and the spread of infectious diseases. These types of externalities are often difficult to address through national policy alone and require international cooperation and coordination.

An International Externality Occurs When Spillover Effects from Market Activities