An externality can occur when:
A)a voluntary transaction between two individuals creates economic value.
B)a person's action affects another's wealth either positively or negatively.
C)a self-interested individual tries to maximize his/her profits.
D)a voluntary transaction between two individuals creates economic loss.

Question

Quizplus · Accepted Answer

An externality occurs when a person's action affects another's wealth either positively or negatively. This can happen without the affected party's consent or involvement in the initial transaction. For example, pollution from a factory can negatively affect the health and property values of nearby residents, even if they have no say in the factory's operations.

An Externality Can Occur When