Which Statement BEST Describes a Negative Externality

question 115

Multiple Choice

Which statement BEST describes a negative externality?

• A) Your neighbour loves to bake bread and always brings you a loaf fresh and hot from the oven.
• B) Your neighbour has an ornamental pond that breeds mosquitoes.
• C) Your neighbour has invested in beautiful landscaping,increasing the value of all of the houses on the block.
• D) Your neighbour has a pool and has given you an open invitation to come over and swim.

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Definitions:

Expected Value

Probability-weighted average of the payoffs associated with all possible outcomes.

Expected Returns

The average return an investor anticipates receiving from an investment, taking into account the probability of different outcomes.

Probability

A measure of the likelihood that an event will occur, often expressed as a number between 0 and 1, where 0 means impossibility and 1 indicates certainty.

Expected Income

The forecasted amount of money that an individual or entity anticipates receiving over a certain period.