An externality is said to exist when:
A)the market allocation of resources is not Pareto- optimal.
B)an agent's consumption affects the prices paid by the agent.
C)an economic agent directly affects another economic agent or agents.
D)an economic activity indirectly affects others through prices.

Question

Quizplus · Accepted Answer

An externality exists when an economic agent directly affects another agent or agents. This can be positive (beneficial) or negative (harmful) and can impact production or consumption. Examples of externalities include pollution or noise from factories affecting nearby residents, or education benefiting not only the individual being educated but also their future employers and society as a whole.

An Externality Is Said to Exist When