An externality is defined as
A)an opportunity cost that is not considered, which causes inefficiency.
B)a social cost that affects parties external to a transaction.
C)a transaction that imposes a loss on one of the parties involved.
D)a "cost of doing business" that cannot be allocated to any particular good.
E)the increase in cost associated with increased production.

Question

Quizplus · Accepted Answer

An externality is an economic concept referring to a cost or benefit incurred by a third party not involved in a transaction. These external costs or benefits can be positive or negative and affect parties external to a transaction. For example, pollution emitted by a factory can negatively impact the health of neighboring residents, who are not involved in the transaction between the factory and its customers. The external cost incurred by the residents is an example of a negative externality.

An Externality Is Defined as