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.
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.}