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Externalities and Market Failures

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Multiple Choice

What is an externality?

  1. A cost or benefit that arises from the production or consumption of a good or service that is not reflected in the market price.
  2. A cost or benefit that is imposed on a third party by an economic activity.
  3. A cost or benefit that is incurred by a producer or consumer as a result of their own economic activity.
  4. A cost or benefit that is shared equally by all members of society.
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