A negative externality is a situation in which
A) there is a spillover of benefits.
B) a cost associated with an economic activity is borne by a third party.
C) a firm is paying in excess of the total costs of producing a good.
D) none of the above.

Question

Quizplus · Accepted Answer

A negative externality occurs when a cost associated with an economic activity is imposed on a third party who did not choose to incur that cost. For example, pollution from a factory may cause health problems for nearby residents, who have no control over the factory's emissions.

A Negative Externality Is a Situation in Which