An externality is
A) the benefit that accrues to the buyer in a market.
B) the cost that accrues to the seller in a market.
C) the unanticipated effect on a business of a decision that it makes
D) the compensation paid to a firm's external consultants.
E) the uncompensated impact of one person's actions on the well-being of a bystander.

Question

Quizplus · Accepted Answer

An externality is the uncompensated impact of one person's actions on the well-being of a bystander. This means that the cost or benefit of an action is not fully borne by the individual or firm taking the action, but spills over to affect others in the market or society. For example, pollution from a factory imposes costs on nearby residents, even though they are not compensated for this harm.

An Externality Is