In general,an externality is created when

Question

Quizplus · Accepted Answer

An externality is a spillover effect that affects individuals or parties who were not part of the original transaction. These effects can be positive, such as when a new factory creates jobs in the surrounding community; or negative, such as when pollution from a factory harms the health of nearby residents. In both cases, individuals who are not part of the transaction are affected by its outcomes. Choice B is incorrect because low-quality products do not necessarily create externalities. Choice C is partially correct, as pollution can create negative externalities if individuals are harmed by it, but it is not the only way in which externalities occur. Choice D is incorrect, as government subsidies for education do not necessarily create externalities either.

In General,an Externality Is Created When