Which of the following is an example of an externality?
A)Drug abuse affecting David's health
B)Sara taking a break from work
C)A transaction between two parties, affecting them alone
D)Tom's smoking affecting his roommate's health

Question

Quizplus · Accepted Answer

An externality is a cost or benefit that affects a third party who did not choose to incur that cost or benefit. Tom's smoking affects his roommate's health without his roommate choosing to incur that cost, making it an example of an externality. The other options either only affect the individual(s) involved (A and B) or are not related to any costs or benefits on any third party (C).

Which of the Following Is an Example of an Externality