Which of the following is an example of a negative externality?

The cost suffered by a third party as a consequence of an economic transaction is called negative externality. The producer and consumers are called the first and second party, individuals, organisations and property owners or any resource that is indirectly affected are called third parties. Negative externalises are also called spillover effect or external cost. Externalities like waste arise from the consumption while the externalities like Carbon arise from the production.

bihariyadeep28 bihariyadeep28 · Answer 2 · 2022-02-01T06:03:29+01:00

The business can be affected by internal as well as external environment. Internal environment consist of internal factors which are likely to affect business due to any change and external environment consist of several external forces and factors.

Negative Externally

The impact on any third party due to the occurrence of economic transactions can be said as negative externally. Here, increase in sales and market size are related to the firm and are internal factors for the business.

Whereas production of a substitute can be said as external but cannot be stated as negative externally. Air pollution is the damage to the third party and this can be said as an example of negative externally.

Therefore, Air pollution can be said as an example of negative externally and OPTION A is correct.

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