An externality is _____
A)a cost of a transaction that is borne by the government.
B)a benefit of a transaction that is enjoyed by the firms.
C)a cost or benefit that arises when market price changes.
D)any cost or benefit of a transaction that is not accounted for in the market price.
E)the revenue generated by a firm.

Question

Quizplus · Accepted Answer

An externality is any cost or benefit of a transaction that is not accounted for in the market price. It occurs when the actions of an individual or a firm have an impact on the well-being of another individual or firm, and this impact is not reflected in the price of the transaction. For example, pollution from a factory may impose costs on the neighboring community that are not reflected in the price of the goods produced by the factory.

An Externality Is _____