If a coal-powered electrical generator discharges smoke into the air and causes uncompensated costs and discomfort to residents of a town, this situation is an example of a(n):
A) quasi-public good.
B) external cost.
C) external benefit.
D) specific tax.

Question

Quizplus · Accepted Answer

The situation described is an example of an external cost, as the pollution from the coal-powered generator imposes costs on individuals outside the market transaction (residents of the town) who are not compensated for those costs.

If a Coal-Powered Electrical Generator Discharges Smoke into the Air