An externality exists if:

Question

Quizplus · Accepted Answer

An externality exists when the production or consumption of a good or service affects the well-being of a third party, who is not involved in the transaction and whose interests are not taken into account. An externality occurs because the producer or consumer of a good does not take into account the full costs or benefits that arise from their actions, and as a result, some of these costs or benefits are imposed on others. In other words, the producer of the good is unable to impose production costs on all users of the good.

An Externality Exists If