A ________ occurs when an economic activity has a spillover cost that does not affect those directly engaged in the activity.
A) positive externality
B) negative externality
C) gain in producer surplus
D) gain in consumer surplus

Question

Quizplus · Accepted Answer

This situation is referred to as a negative externality. It occurs when the cost of an economic activity is borne by a third party who is not directly involved in it. This results in an inefficient allocation of resources as the market does not take into account the full costs of the activity.

A ________ Occurs When an Economic Activity Has a Spillover