Question

. An externality is: A. the costs that parties incur in the process of agreeing and following through on a bargain. B. the uncompensated impact of one person's actions on the well-being of a bystander. C. the proposition that private parties can bargain without cost over the allocation of resources. D. a market equilibrium tax.

Answer 1

The correct answer is B. the uncompensated impact of one person's actions on the well-being of a bystander.

Step-by-step explanation:

A transaction involves two parties, for example, consumer and the seller, who are referred to as the first and second parties. Any other party that is not related to the transaction is referred to as a third party. A externality is a cost or gain that is suffered by a third party as a consequence of an economic transaction.

In others words , an externatily is an uncompensated impact of one person's actions on the well-being of a bystander.