What is the definition of an externality?

Multiple choice question for Externality & Internality. Select an option, then review the explanation below.

Show Answers

The advantage gained by the purchaser in a transactionThe expense incurred by the seller in a market exchangeNone of the above choicesThe payment made to a company's outside advisorsThe unaddressed effect of an individual's actions on the welfare of others

Explanation

An externality refers to the benefit that a buyer receives in a market transaction. Other options either describe costs, payments unrelated to externalities, or the impact on third parties, which do not define an externality.

Practice related questions from the same subject.

1.What is the primary function of tradable pollution permits?
2.The gas-guzzler tax imposed on new vehicles with poor fuel efficiency serves as an example of which economic concept?
3.Roberto and Thomas share a university dorm room. Roberto enjoys playing loud music, valuing it at €100, while Thomas prefers silence, valuing peace at €150. Assuming Roberto has the legal right to play loud music and there are no costs involved in negotiation, which of the following best describes an efficient outcome to this externality issue?
4.Which of the following is not classified as a transaction cost borne by parties when negotiating to address a pollution externality?
5.According to the Coase theorem, under what condition can private individuals effectively resolve externality issues?

What is the definition of an externality?

Explanation

More Externality &amp; Internality MCQs

More Externality & Internality MCQs