What is an externality?
A) the impact of one person's actions on the well-being of a bystander
B) the impact of a person's actions on that person's well-being
C) the impact of society's decisions on the well-being of another society
D) the impact of society's decisions on the well-being of one person in the society

Question

Quizplus · Accepted Answer

An externality is the impact of one person's actions on the well-being of a bystander. It refers to a situation where the market price of a good or service does not reflect the full social costs or benefits of that good or service. For example, pollution from a factory may have a negative impact on the health and well-being of people living nearby, who are not directly involved in the production or consumption of the good. This is a negative externality. On the other hand, the development of a public park may have a positive impact on the local community, even those who do not use the park. This is a positive externality.

What Is an Externality