Evidence of external costs in the production of a product is present if
A) the price of the product is higher than it should be.
B) the production cost increases because of an increase in the minimum wage.
C) non-buyers and/or non-producers of the product experience a loss for which they are not compensated.
D) buyers refuse to purchase the product.
E) producers pay all of the costs of producing the good or service.

Question

Quizplus · Accepted Answer

External costs, also known as negative externalities, are costs that are experienced by individuals outside of the transaction between the buyer and seller. This means that non-buyers and/or non-producers of the product may experience a loss for which they are not compensated, such as pollution from the production process. As a result, the cost of the product does not reflect the full social cost, leading to an inefficient allocation of resources.

Evidence of External Costs in the Production of a Product