An Externality Is

question 442

Multiple Choice

An externality is

• A)the costs that parties incur in the process of agreeing and following through on a bargain.
• B)the uncompensated impact of one person's actions on the well-being of a bystander.
• C)the proposition that private parties can bargain without cost over the allocation of resources.
• D)a market equilibrium tax.

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Definitions:

Inferior Good

A type of good for which demand decreases as the income of consumers increases, conversely, demand increases when consumer income decreases.

Cross Elasticity

Cross elasticity of demand quantifies how the demand for a good or service is affected by the price change of another related good, reflecting their substitutability or complementarity.

Complements

Goods or services that are used together, where the use of one increases the demand for the other.

Substitutes

Goods or services that can be used in place of each other; as the price of one increases, the demand for the other increases.