A cost that is imposed when an action by one agent harms another, outside of any market exchange, is a(n):
A) regulation.
B) marginal cost.
C) market price.
D) external cost.

Question

Quizplus · Accepted Answer

An external cost is a cost that is imposed on a third party due to the actions of an economic agent, without any compensation being paid. It is also known as a negative externality. Examples include pollution from a factory affecting nearby residents, or noise from an airport disturbing people living nearby. The cost of these externalities is not reflected in the market price of the good or service being produced, and therefore creates an inefficiency in the market.

A Cost That Is Imposed When an Action by One