If you burn garbage in your backyard and the smoke damages a neighbor's house,the damage is considered an externality.
The externality is the cost of the house damage paid by the neighbor (third party).

Question

Quizplus · Accepted Answer

An externality is a cost or benefit that is not reflected in the market price of a good or service and is incurred by a third party. In this case, the neighbor is the third party who is incurring the cost of the damage caused by the smoke from burning garbage. Therefore, the damage is considered an externality and the statement is true.

If You Burn Garbage in Your Backyard and the Smoke