An externality can best be described as:
A) An impact, positive or negative, that a new project would have on existing operations.
B) An example of an opportunity cost.
C) Something that always has a negative impact.
D) Something that should not be included in the capital budgeting process.

Question

Quizplus · Accepted Answer

An externality refers to a consequence of an economic activity experienced by unrelated third parties; it can be either positive or negative. Choice A correctly describes an externality as an impact, positive or negative, that could arise from a new project, affecting parties not directly involved in the project.

An Externality Can Best Be Described As