Which of the following is not an example of an externality?
A) Carbon dioxide from energy generation that adds to the worldwide long-term greenhouse effect.
B) Heat from a factory that makes the neighboring tomato patches more productive.
C) A defective part that causes an automobile to break down three months after purchase.
D) Acidic by-products of fossil fuel combustion that produce acid rain.

Question

Quizplus · Accepted Answer

A defective part causing an automobile to break down is a direct consequence of a transaction between the buyer and seller, not an externality. Externalities are effects of a transaction that impact third parties who are not directly involved in the transaction.

Which of the Following Is Not an Example of an Externality