The effect of an externality is that:

Question

Quizplus · Accepted Answer

An externality refers to a cost or a benefit that affects a third party who is not directly involved in the production or consumption of a good or service. In the case of a public good, such as a park or a firework display, it is difficult to charge all consumers for the good as it is non-excludable in nature. This leads to a limited incentive for producers to supply such goods as they cannot recover the full cost of production. Therefore, option D is correct as it highlights the impact of an externality on the production of a public good.

The Effect of an Externality Is That