Q. What is External Diseconomies?

The expansion of an industry is likely to generate external diseconomies that raise the cost of production. An increase in the size of industry may raise the prices of some factors such as raw materials and capital goods that are in short supply. Expansion of an industry may also elevate the wages of skilled labour that are in short supply. It may also create transport bottlenecks. As the size of an industry expands rivers, lakes and seas may be polluted by firms. This will create external diseconomies to some other industries orfirms, for illustration the fishing industry. Pollution of this sort will also create health hazards to the people in adjoining areas. Expansion of an industry can also pollute the air from the smoke of factories or fumes of vehicles. This too will have similar diseconomies.