QQuestionEconomics
QuestionEconomics
"Which of these is the best example of an externality?
A. You decide to stop snacking between meals.
B. Your shoe store stops selling your favorite style.
C. You enjoy looking at your neighbor's garden.
D. Your new bicycle goes faster than you expected."
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Answer
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Step 1:Let's solve this economics problem step by step:
Step 2:: Understanding Externalities
An externality is an economic term that describes a cost or benefit that affects a third party who did not choose to incur that cost or benefit. Externalities can be positive (beneficial to others) or negative (harmful to others).
Step 3:: Analyzing Each Option
A. You decide to stop snacking between meals - This is a personal decision that only affects you - No impact on third parties - NOT an externality B. Your shoe store stops selling your favorite style - This is a market transaction between you and the store - Does not create an external cost or benefit to others - NOT an externality C. You enjoy looking at your neighbor's garden - This is a positive externality - Your neighbor's garden provides aesthetic pleasure to you at no additional cost to them - You receive a benefit without paying for it - BEST EXAMPLE of an externality D. Your new bicycle goes faster than you expected - This is a personal experience with a product - No impact on third parties - NOT an externality
Final Answer
You enjoy looking at your neighbor's garden is the best example of an externality, specifically a positive externality where you receive a benefit (aesthetic pleasure) without directly paying for it.
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