Externalities are:
A) differences between social costs and social benefits.
B) differences between social benefits and private benefits.
C) social costs.
D) social benefits.

Question

Quizplus · Accepted Answer

Externalities occur when the actions of one party impose costs or benefits on others who are not involved in the market transaction. When the social benefits of an action are greater than the private benefits, positive externalities exist. Conversely, negative externalities arise when the social costs exceed the private costs of an activity. Therefore, externalities are differences between social benefits and private benefits.

Externalities Are