When does an externality occur?
A) when only the people making the demand and supply decisions share the benefits or the costs of an activity
B) when private costs of production are ignored
C) when private costs of production equal the full social costs associated with production of a good
D) when people other than those making the demand and supply decisions share the benefits or the costs of an activity

Question

Quizplus · Accepted Answer

An externality occurs when people other than those making the demand and supply decisions share the benefits or the costs of an activity. This means that the full cost or benefit of an action is not borne by those directly involved in it, leading to a divergence between private and social costs.

When Does an Externality Occur