An externality can best be defined as
A) a party not directly involved in a transaction.
B) a consequence of a transaction that spills over to affect third parties.
C) a right of an owner to use and exchange property.
D) a cost associated with the production of one more unit of output.

Question

Quizplus · Accepted Answer

An externality is a cost or benefit of a transaction that affects a third party who is not directly involved in the transaction. For example, pollution from a factory can affect the health of people living nearby, even though they may not be buying or selling anything with the factory.

An Externality Can Best Be Defined as