A landfill site produces an obnoxious odor.Homes downwind of the site rent for $1000 per month while homes upwind of the site rent for $1500 per month.If the odor is the only detectable difference between two neighborhoods,the difference in the rent is the ________ of the odor.

Question

Quizplus · Accepted Answer

The difference in rent between the two neighborhoods is not captured by the individuals who produce the odor or by those who rent the homes, but rather by those external to the transaction, who are affected by the unpleasant odor. This is an example of an external cost, where the cost of the odor is imposed on others who are not involved in the transaction. Therefore, the best choice is B, external cost.

A Landfill Site Produces an Obnoxious Odor