Which of the following statements about externality is INCORRECT?
A)Pollution of a chemical plant will create negative externalities to the residents living in the neighborhood.
B)Trees planted in the backyard of a house could create positive externalities to the pedestrians passing under.
C)Extra output sold by a firm that lowers the market price creates negative externalities to its rivals.
D)A single action may confer positive externalities on some people,but negative externalities on others.

Question

Quizplus · Accepted Answer

Extra output sold by a firm that lowers the market price creates a market failure, but it is not considered an externality. It is an example of a negative production externality if the firm creates pollution or a negative consumption externality if the firm sells harmful products.

Which of the Following Statements About Externality Is INCORRECT