When Jake takes into account how his actions affect Jill, and then changes his behaviour, an externality is solved.

Question

Quizplus · Accepted Answer

This is because an externality refers to a cost or benefit that is not reflected in the market price, and in this case, Jake is taking into account the impact of his actions on Jill, which is a positive benefit that was not initially being considered. By changing his behavior, he is creating a positive externality for Jill.

When Jake Takes into Account How His Actions Affect Jill