Externalities exist when the actions of one agent
A)benefit or hurt another agent who is not part of the exchange relationship.
B)hurt the agent committing the action.
C)benefit the agent committing the action.
D)benefit or hurt another agent who is a part of the exchange relationship.

Question

Quizplus · Accepted Answer

Externalities occur when the actions of one agent (individual, firm, or government) have unintended effects on third parties who are not directly involved in the transaction. This means that these effects can be either positive or negative, and that they are not taken into account by the person or entity taking the action. Therefore, externalities are considered a type of market failure, as they can lead to inefficient outcomes that can harm overall social welfare.

Externalities Exist When the Actions of One Agent