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 neighbour'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 the price of lumber as lumberjacks' wages increase is not an externality as it is a direct result of market forces and does not impose any unintended costs or benefits on third parties. In contrast, options A, C, D, and E all involve externalities, as they involve spillover effects on others that are not reflected in market prices.

Which of the Following Is Not an Example of an Externality