Question

select the correct answer. which statement defines externality? a. it is a change in demand brought about by factors other than price. b. it is the external factors that cause a rise in the supply of goods or services. c. it is the external factors that cause a decrease in the supply of goods or services. d. it is the impact of production and consumption on unrelated third parties.

Explanation:

To determine the correct definition of externality, we analyze each option:

• Option A describes a change in demand due to non - price factors, which is related to a shift in the demand curve, not externality.
• Option B refers to external factors affecting supply increase, which is about supply - side external influences but not the definition of externality.
• Option C refers to external factors affecting supply decrease, also not the definition of externality.
• Option D: By definition, an externality is the impact (positive or negative) of production or consumption activities on third parties who are not directly involved in the production or consumption process.

Answer:

D. It is the impact of production and consumption on unrelated third parties.