Which of the following is not an example of an externality?
A) Drunk drivers raise everyone's auto insurance premiums.
B) The price of lumber increases as lumberjacks' wages increase.
C) The neighbor's beautiful front yard increases your home value.
D) Someone drives a car that emits thick black smoke.
E) People who live near a bakery enjoy the smell of baked bread.

Question

Quizplus · Accepted Answer

The increase in lumber prices as wages increase is a direct market effect and not an externality. A, D, and E are examples of negative, or sometimes positive, externalities where an individual's actions affect others in a negative or positive way. C is an example of a positive externality where a neighbor's actions increase the value of another's property.

Which of the Following Is Not an Example of an Externality