What is the correct answer?


In economics, Externality means:

A. An externality is a cost or benefit which is not transmitted through prices

B. An externality is a cost or benefit which is transmitted through prices

C. An externality is a production received through external resources

D. None of the above

Correct Answer :

A. An externality is a cost or benefit which is not transmitted through prices

In economics, an externality (or transaction spillover) is a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit. A benefit in this case is called a positive externality or external benefit, while a cost is called a negative externality or external cost. Negative A negative externality is an action of a product on consumers that imposes a negative side effect on a third party; it is social cost. Many negative externalities (also called external costs or external diseconomies) are related to the environmental consequences of production and use.
Examples of negative externalities are:
(i) Air pollution from burning fossil fuels causes damages to crops, (historic) buildings and public health.
(ii) Water pollution by industries that adds poisons to the water, which harm plants, animals, and humans.
(iii)The consumption of alcohol when it leads to traffic or other accidents that injure or kill others. Positive
Examples of positive externalities (beneficial externality, external benefit, external economy, or Merit goods) include:
(i)A beekeeper keeps the bees for their honey. A side effect or externality associated with his activity is the pollination of surrounding crops by the bees. The value generated by the pollination may be more important than the value of the harvested honey.
(ii)An individual planting an attractive garden in front of his or her house may provide benefits to others living in the area, and even financial benefits in the form of increased property values for all property owners.
(iii)A public organization that coordinates the control of an infectious disease preventing others in society from getting sick.}

Related Questions

Diseconomies of management lead to: The cross-price elasticity of the demand for orange juice with respect… Identify the author of The Social Framework: Total variable cost curve: A firm can never produce in the middle area of input space, in case of: In perfect competition, the slope of the total revenue curve of a firm… The pay-off matrix shows: At a point below the middle of a straight line demand curve, elasticity… The monopolist often lead to exploitation of: In Prisoners Dilemma, both the prisoners are interrogated: Which of the following is not a feature of isoproduct curves? The production function of homogeneous of degree one (n=1) is also called: If a ten percent increase in price causes a ten percent reduction in quantity… When total revenues equal to total opportunity cost then the firm will… Which of the following pairs of commodities is an example of substitutes? Which of the following is not characteristic of perfect competition? Cross-elasticity of demand or cross-price elasticity between two perfect… In case of monopoly, the slope of MR is: The number of sellers in duopoly is: The vertical distance between TVC and TC is equal to: The long run average cost curve is: In Nash equilibrium, a player: The MRTS along an iso-quant goes on to: On the total utility curve the economically relevant range is the portion… Indifference curve approach (ordinal approach) is superior to utility… Any expansion in output by a firm in the short period will always reduce… Of the following commodities, which has the lowest price-elasticity of… When total product (TP) is maximum: In the case of complements, the cross demand curve slopes: In case the two commodities are complements, cross elasticity will be: