A situation in which a benefit or a cost associated with an economic activity spills over to third parties is called
A) a public good.
B) a merit good.
C) an externality.
D) the free-rider problem.

Question

Quizplus · Accepted Answer

An externality refers to a benefit or cost that is not reflected in the market price of a good or service and is experienced by someone other than the buyer or seller. The spillover effect on third parties can be positive or negative, and it can lead to market failure if not addressed. Public goods and merit goods are also related concepts to externalities, but they do not exclusively refer to the spillover effect on third parties. The free-rider problem is another issue related to the provision of public goods, but it is not directly related to externalities.

A Situation in Which a Benefit or a Cost Associated