Alex pays Dale to fix his roof. Alex's neighbor Chris works at night and cannot sleep during the day because of the noise from the roof repairs. This situation is an example of

Question

Quizplus · Accepted Answer

This situation is an example of an externality because Chris, who is not part of the transaction between Alex and Dale, is affected by it. An externality occurs when a third party is affected by an economic activity for which they are not directly involved. In this case, Chris is negatively impacted by the noise from the roof repairs, which is an unintended consequence of the transaction between Alex and Dale.

Alex Pays Dale to Fix His Roof