Externalities are a measure of the divergence between social costs and private costs.

Question

Quizplus · Accepted Answer

Externalities refer to the costs or benefits that affect parties who are not involved in the production or consumption of a good or service. Social costs include both private costs and external costs, which are not taken into account by the producer or consumer. Therefore, externalities represent the difference between private costs and social costs.

Externalities Are a Measure of the Divergence Between Social Costs