How do externalities distort the effects of trade?
Externalities impose an external cost. This is the impact of a product that imposes a negative side effect on a third party. Common examples of externality are pollution caused by industries or an increase in the greenhouse effect by some industries or the use of some products. In each of these cases the firm makes the product for the consumer but third parties suffer because of pollution or greenhouse effect. ...
Effects of Trade is discussed in great detail in this solution.