Externalities can only involve the imposition of harm on a party not directly involved in an economic transaction.

Question

Quizplus · Accepted Answer

Externalities can either involve harm or benefits to a party not directly involved in an economic transaction. For example, a factory that emits pollution and affects the health of nearby residents is a negative externality, while a homeowner who maintains a beautiful garden that enhances the overall aesthetic of their neighborhood is a positive externality.

Externalities Can Only Involve the Imposition of Harm on a Party