An externality is
A)the costs that parties incur in the process of agreeing and following through on a bargain.
B)the uncompensated impact of one person's actions on the well-being of a bystander.
C)the proposition that private parties can bargain without cost over the allocation of resources.
D)a market equilibrium tax.

Question

Quizplus · Accepted Answer

An externality is an unintended consequence of an economic activity that affects third parties without compensation. It can be positive (beneficial) or negative (harmful). For example, pollution from a factory can harm the health of nearby residents, which is a negative externality. The parties responsible for the pollution do not compensate the affected residents for the harm they caused, hence it is uncompensated.

An Externality Is