Which of the following is the best definition of an externality?
A) When firms sell products at a price greater than marginal cost
B) When government intervention in a market reduces consumer surplus
C) When an economic activity imposes spillover costs or benefits on a third party
D) When a worker takes a job "off the books" to avoid paying taxes

Question

Quizplus · Accepted Answer

An externality is an economic concept referring to a cost or benefit incurred by a party who did not agree to the action causing the cost or benefit. In other words, it's a spillover cost or benefit that affects a third party. Choices A, B, and D do not fit this definition.

Which of the Following Is the Best Definition of an Externality