An Externality Arises When a Person Engages in an Activity

question 464

Multiple Choice

An externality arises when a person engages in an activity that influences the well-being of

• A)buyers in the market for that activity and yet neither pays nor receives any compensation for that effect.
• B)sellers in the market for that activity and yet neither pays nor receives any compensation for that effect.
• C)bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect.
• D)Both (a) and (b) are correct.

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Definitions:

Income Distribution

The way total income is shared among individuals or groups within an economy or organization.

Net Income

A company's total earnings or profit; calculated as revenues minus expenses, taxes, and the cost of goods sold.

Personal Use

Utilization of property or goods in a manner primarily for the individual's own consumption, enjoyment, or benefit, rather than for business or commercial purposes.

Capital Contributions

Monetary or non-monetary assets that are provided to a company by its owners or shareholders to increase its equity.