An externality exists when
A) goods are sold in specific geographic locations.
B) some of the benefits or costs associated with a good are borne by third parties.
C) the government taxes a good.
D) the government subsidizes a good.

Question

Quizplus · Accepted Answer

An externality exists when some of the benefits or costs associated with a good are borne by third parties. This means that the actions of one party have an impact on others who were not involved in a transaction, and these impacts can be positive or negative. For example, pollution from a factory may harm the health of nearby residents, even though they did not purchase the goods produced by the factory.

An Externality Exists When