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

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An externality occurs when a person or group's actions affect the well-being of others who are not included in that action. In this scenario, the loud music at a party affects the neighbors who did not choose to participate in the party. This is an example of a negative externality, where the cost (noise pollution) is borne by those who did not receive any benefit (enjoyment of the party).

When You and Your Friends Enjoy Loud Music at a Party