When do externalities arise?
A)When the explicit costs of producing a good or service are not borne by the producer
B)When an economic activity imposes a burden on them who are not directly involved in it
C)When the government produces such goods and services which are consumed by only a particular class of people
D)When goods of mass consumption are not produced as they do not yield profit for the producers

Question

Quizplus · Accepted Answer

Externalities arise when an economic activity imposes a burden on those who are not directly involved in it. This can happen when the activity generates negative effects (such as pollution or congestion) that affect third parties who do not participate in the market exchange. Positive externalities can also arise when an activity generates positive effects (such as knowledge spillovers or neighborhood effects) that benefit third parties who do not pay for them.

When Do Externalities Arise