Environmental economics is a branch of economics that focuses on the relationship between the economy and the environment. It studies how economic activities impact natural resources and ecosystems, and how environmental policies can be designed to promote sustainable development. This field aims to find a balance between economic growth and environmental protection. One key concept in environmental economics is the idea of externalities, which are costs or benefits that affect third parties who are not directly involved in an economic transaction. For example, pollution from a factory can harm nearby communities, leading to discussions about regulations and incentives to reduce environmental harm while fostering economic activity.