An Externality Is Said to Exist When

question 33

Multiple Choice

An externality is said to exist when:

• A)individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account.
• B)individuals impose costs or benefits on others,and the market provides incentives to take these costs and benefits into account.
• C)individual actions are affected by external forces like the loss of U.S.jobs because of competition from abroad.
• D)individual actions are affected by government policies (such as taxes)that are externally imposed on the market.

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Definitions:

Utility Function

A mathematical representation of how different combinations of goods or services can result in varying levels of satisfaction or utility to a consumer.

Consumer's Surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay, representing the benefit consumers receive from the purchase.

Earplugs

Small devices inserted into the ear canal to protect the ears from loud noises, water, or foreign bodies.

Consumer's Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service versus the total amount they actually pay.