Which of the following illustrates the concept of external cost?
A)Bad weather reduces the size of the wheat crop.
B)A reduction in the size of the wheat crop causes income of wheat farmers to fall.
C)Smoking harms the health of the smoker.
D)Smoking harms the health of nearby nonsmokers.
E)Public health services reduce the transmission of disease.

Question

Quizplus · Accepted Answer

External cost occurs when the consumption or production of a good or service imposes a negative effect on a third party who is not involved in the transaction. Smoking harms the health of nearby nonsmokers, who are not involved in the decision to smoke, and therefore represents an external cost.

Which of the Following Illustrates the Concept of External Cost