An externality arises when a person engages in an activity that influences the well-being of
A)buyers in the market for that activity and yet neither pays nor receives any compensation for that effect.
B)sellers in the market for that activity and yet neither pays nor receives any compensation for that effect.
C)bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect.
D)Both (a) and (b) are correct.

Question

Quizplus · Accepted Answer

An externality arises when a person engages in an activity that influences the well-being of bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect. Option A and B are incorrect because it's the bystanders, not buyers or sellers, who are affected by the activity. Option D is incorrect because only option C is correct.

An Externality Arises When a Person Engages in an Activity