An externality is the impact of:
A)society's decisions on the well-being of society
B)a person's actions on that person's well being
C)society's decisions on the well-being of one person
D)one person's actions on the wellbeing of a bystander

Question

Quizplus · Accepted Answer

An externality occurs when the actions of one person have an impact on the well-being of a bystander, without that impact being reflected in market prices. This can be a positive or negative impact, and it is not accounted for by the decision-making individual or entity. Choice A is close but not quite right because an externality only applies to the impact on a bystander, not society as a whole. Choice B is incorrect because it refers only to the individual's own well-being, not the impact on others. Choice C is incorrect because it refers to the impact on a single person, not a bystander.

An Externality Is the Impact Of