An externality occurs when ________.
A) the quantity demanded of a good exceeds the quantity supplied
B) the quantity supplied of a good exceeds the quantity demanded
C) the government regulates production and consumption decisions
D) an economic activity affects third parties not engaged in the activity

Question

Quizplus · Accepted Answer

An externality occurs when the production or consumption of a good or service affects third parties who are not involved in the transaction and did not agree to it. These effects can be positive or negative and are not taken into account by the market, leading to market failure.

An Externality Occurs When ________