When the consumption of a good or service imposes costs to society that are not reflected in the market price of the good,_____
A)a negative externality arises.
B)it implies that a renewable resource has been used in the production of the good.
C)a positive externality arises.
D)it implies that the good is a public good.
E)it implies that a nonrenewable resource has been used in the production of the good.

Question

Quizplus · Accepted Answer

When there are costs to society that are not considered in the market price of the good, it creates a negative externality. This means that the production or consumption of the good has a detrimental effect on third parties outside of the transaction. For example, pollution from factories or traffic congestion from cars can negatively impact the health and wellbeing of people who are not directly involved in the production or consumption of the product.

When the Consumption of a Good or Service Imposes Costs