An example of a negative externality is:
A)the benefit you receive when your neighbor installs a smoke detector.
B)the reduction in profits for your company that occurs when there is a decrease in consumer demand for the product you manufacture.
C)the sleep you lose when your neighbor throws a loud party next door that keeps you awake.
D)the change in the property values of your neighbors' homes when you paint your house and landscape your front yard

Question

An example of a negative externality is:
A)​the benefit you receive when your neighbor installs a smoke detector.
B)​the reduction in profits for your company that occurs when there is a decrease in consumer demand for the product you manufacture.
C)​the sleep you lose when your neighbor throws a loud party next door that keeps you awake.
D)​the change in the property values of your neighbors' homes when you paint your house and landscape your front yard

Quizplus · Accepted Answer

This is an example of a negative externality because the neighbor's action of throwing a loud party has a negative impact on the well-being of the person next door, causing them to lose sleep. The negative impact is not reflected in the cost or benefit calculation of the neighbor throwing the party, hence making it an external cost imposed on another person. The other options do not fit the definition of a negative externality as they either do not have a negative impact on others or do not involve externalities at all.

An Example of a Negative Externality Is