When you and your friends enjoy loud music at a party late at night,your neighbors also experience that noise and may not appreciate it.Your enjoyment of a benefit-music played loudly-affects others who consider it a cost.This spillover is an example of a/an ____________________.

Question

Quizplus · Accepted Answer

An externality is a cost or benefit that affects a party who did not choose to incur that cost or benefit. In this case, the loud music played by the party affects the neighbors who did not choose to listen to the music. Thus, the spillover effect on the neighbors is an example of a negative externality.

When You and Your Friends Enjoy Loud Music at a Party