An example of an externality is the impact of
A)John's actions on Jane's well-being.
B)John's actions on John's own well-being.
C)society's decisions on society's well-being.
D)society's decisions on John's well-being.

Question

Quizplus · Accepted Answer

An externality occurs when an economic transaction between two parties has an impact on a third party who is not involved in the transaction. In this case, John's actions may have a positive or negative impact on Jane's well-being, regardless of whether Jane was involved in the original transaction. This makes A the best choice as it represents an example of an externality. B and C are not examples of externalities since they refer to the impact of one's actions or decisions on their own well-being or society's well-being, respectively. D may be an externality if society's decisions have an indirect impact on John's well-being, but it is not as clear or direct an example as A.

An Example of an Externality Is the Impact of