An externality is defined as
A)an opportunity cost that is not considered, which causes inefficiency.
B)a social cost that affects parties external to a transaction.
C)a transaction which imposes a loss on one of the parties involved.
D)a "cost of doing business" that cannot be allocated to any particular good.
E)the increase in cost associated with increased production.

Question

Quizplus · Accepted Answer

Externality is a cost or benefit that affects parties external to a transaction. It is not directly accounted for in the cost or benefit of the production or consumption of a good or service. It can be positive or negative and can occur through production or consumption activities. Example of negative externality is pollution caused by a factory, which affects the health and well-being of people living in the surrounding area who are not involved directly with the production process.

An Externality Is Defined as