Externality theory is the basic theory of the following branch of Economics: (1) Environomics (2) Fiscal Economics (3) International Economics (4) Macro Economics

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(1) Environomics Explanation: In economics, an externality is a cost or benefit which results from an activity or transaction and which affects an otherwise uninvolved party who did not choose to incur that cost or benefit. Environmental pollution is a classic case of an externality. Externality theory forms the basic theory of environmental economics.

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