In general,an externality is created when
A)people are affected (other than by price)by a transaction which they were not part of.
B)firms produce a product of low quality and consumers don't like it.
C)firms have to pay for pollution the environment.
D)the government subsidizes education.

Question

Quizplus · Accepted Answer

An externality is a cost or benefit that affects a party who did not choose to incur that cost or benefit. In choice A, people are affected by a transaction (the cost or benefit) which they were not part of, making it the best choice for creating externalities. The other choices do not fit the definition of an externality.

In General,an Externality Is Created When