An externality arises when a firm or person engages in an activity the well-being of a third party, and yet neither pays nor receives any compensation for that effect.
1) If the impact on the third party is adverse, it is called a
a) positive
b) negative
externality.
2) With this type of externality, in the absence of the government intervention, the market-determined quantity produced will be
a) greater
b) less than the socially optimal quantity.
1) If the impact on the third party is adverse, it is called a
a) positive
b) negative
externality.
2) With this type of externality, in the absence of the government intervention, the market-determined quantity produced will be
a) greater
b) less than the socially optimal quantity.