Externalities are knowledge spillovers that occur when companies in the same industry locate in the same area.

Question

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Externalities are positive or negative effects that spill over to third parties who are not involved in the production or consumption of a good or service. In the case of an industrial cluster, companies can benefit from knowledge spillovers and technological advancements that occur when they locate close to each other. This is an example of a positive externality, as it can increase productivity and innovation within the industry.

Externalities Are Knowledge Spillovers That Occur When Companies in the Same