Externalities (costs excluded from transaction costs)
Externalities are costs not captured by the market – e.g., pollution from the burning of fossil fuels that results in contaminated fish and air that causes respiratory illnesses and lost revenues (e.g., from fishing). These costs are not reflected in market prices at say the gas pump or the electricity meter, but rather arise in another system such as healthcare. Negative externalities are considered by economists as "market failures" that distort the market and the economic landscape. Externalities may be accounted for through the use of pricing mechanisms, such as a tax, that raises the price, which reduces demand and, therefore, the quantity of the goods produced.
A simple graphical illustration of externalities is available at the Khan Academy here.