Which of the following does NOT contain an externality?
A) I sell you an ice cream and you drip it all over the person sitting next to you.
B) I sell you an ice cream and it gives you a headache.
C) I give you an ice cream and you share it with a friend.
D) I sell you an ice cream and you share it with your friend.

Question

Quizplus · Accepted Answer

Externalities are costs or benefits that affect a party who did not choose to incur that cost or benefit. In choice B, the headache is a direct consequence to the person consuming the ice cream, not an external effect on a third party. Choices A, C, and D involve effects on others not directly involved in the transaction or action, thus containing externalities.

Which of the Following Does NOT Contain an Externality