Which of the following is NOT an example of an externality?
A) A cookie company emits a wonderful aroma in the air that makes people smile.
B) The neighbor's wind chimes interfere with your sleep.
C) A firm lays off 100 workers.
D) Cancer-causing chemicals are dumped into the drinking water supply of a city.

Question

Quizplus · Accepted Answer

An externality is an unintended and uncompensated impact of an economic activity on third parties. Option C is not an example of an externality because the layoff of workers only affects the firm and its employees, not any third parties outside of the firm.

Which of the Following Is NOT an Example of an Externality