An externality is
A) a third-party benefit or cost that is associated with the production of a good.
B) when external forces such as war or flood affect the market.
C) government intervention in the markets.
D) transaction costs.

Question

Quizplus · Accepted Answer

An externality is a cost or benefit that affects a third-party who is not directly involved in the production or consumption of a good. It can be positive or negative, and can arise from either production or consumption activities. For example, pollution from a factory is a negative externality because it imposes costs on people who are not the producers or the consumers of the factory's goods.

An Externality Is