Which one of the following is correct of externalities?

Question

Quizplus · Accepted Answer

Externalities refer to the costs or benefits of a decision that are imposed on others who are not involved in the decision-making process. They can either be positive (benefits) or negative (costs). The existence of negative externalities leads to an outcome in which too little of the good is produced, as the producer does not take into account the costs that are imposed on others. On the other hand, the existence of positive externality leads to an outcome in which too much of the good is produced, as the producer does not take into account the benefits that are enjoyed by others. Therefore, option (D) is the correct answer, as it defines externalities and explains their effect on decision-making.

Which One of the Following Is Correct of Externalities