Which of the following best illustrates an externality?
A) A worker agrees to work in a dangerous job because it is the best job the worker can get.
B) A job is so dangerous that the employer cannot attract workers, resulting in a good not being produced despite the fact that it is valued by consumers.
C) A local government imposes a payroll tax of $5 per hour on employers causing some jobs, that would have existed in the absence of the tax, to be lost.
D) An employer and worker agree to produce a good with a production method that emits pollution on the nearby community.

Question

Quizplus · Accepted Answer

An externality is a cost or benefit that affects a party who did not choose to incur that cost or benefit. In this case, the pollution emitted by the production method affects the nearby community who did not choose to incur that cost. Therefore, D best illustrates an externality. A, B, and C do not necessarily involve an externality.

Which of the Following Best Illustrates an Externality