An external cost is:
a cost paid by the consumer or the producer. the cost of reaching an agreement. the cost to everyone. a cost paid by people other than the consumer or the producer trading in the market.
An external cost is best defined as a cost paid by people other than the consumer or the producer trading in the market. This type of cost occurs when the actions of consumers or producers have negative effects on third parties who are not involved in the transaction. Examples include pollution from a factory that affects the health of nearby residents.