A negative externality occurs if production, or consumption, by one group reduces the well-being of third parties.

Question

Quizplus · Accepted Answer

A negative externality is a cost that is suffered by a third party as a result of an economic transaction. It occurs when the production or consumption of a good or service causes harm to others who are not involved in the transaction. For example, pollution from a factory may harm the health of nearby residents, who are not involved in the production process.

A Negative Externality Occurs If Production, or Consumption, by One