An externality exists:
A) only when I perform an action that has no impact on me directly.
B) when something I do affects the well-being of persons or things that are not involved in my action.
C) only when a business performs an action, because externalities do not apply to activities of individuals.
D) when economic theory is used to explain something typically thought to be beyond, or external to, the study of economics.

Question

Quizplus · Accepted Answer

Externalities occur when the actions of individuals or businesses have effects (positive or negative) on third parties who are not directly involved in the transaction or action. This can include pollution affecting nearby residents or vaccination reducing disease spread, benefiting those not vaccinated. Choices A, C, and D misrepresent the concept by either limiting it unnecessarily or misunderstanding its application.

An Externality Exists