A negative externality arises when a firm that is not successful at keeping its costs down goes out of business.

Name: A negative externality arises when a firm that is not successful at keeping its costs down goes out of business.
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Question

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A negative externality occurs when a third party is adversely affected by an economic transaction they are not involved in, such as pollution from a factory affecting nearby residents. A firm going out of business due to high costs does not create a negative externality.

A Negative Externality Arises When a Firm That Is Not