When costs spill over to third parties, there is a(n)
A) cost overrun.
B) excessive competition.
C) negative externality.
D) government subsidy.

Question

Quizplus · Accepted Answer

The term "cost spillover" refers to negative externalities, which occur when the actions of one party impose costs on others who are not involved in the transaction. This creates an inefficiency in the market, as the costs are not fully accounted for by either the buyer or seller. Governments may step in to address these negative externalities through taxation, regulation, or other policies. Option A, cost overrun, refers to a situation where a project costs more than expected. Option B, excessive competition, is not directly related to cost spillovers. Option D, government subsidy, is also not directly related as it involves the government providing financial assistance to a particular group or industry.

When Costs Spill Over to Third Parties, There Is A(n)