Which of the following would be classified as an external cost?
A) As more firms began hiring computer programmers, the salaries of computer programmers increased and therefore the firm's cost of production increased.
B) You eat too much pizza and end up with a stomach ache.
C) You are not able to study at night because there is so much noise coming from the dorm room next to yours.
D) When you purchase a prescription drug you are not made fully aware of all the possible side effects that may result from taking the drug.

Question

Quizplus · Accepted Answer

External costs, also known as negative externalities, occur when the production or consumption of a good or service imposes costs on third parties not involved in the transaction. Choice C represents an external cost because the noise from the dorm room affects someone who is not part of the activity causing the noise, thereby reducing their ability to study.

Which of the Following Would Be Classified as an External