Concept explainers
Examples of consumption activity that creates external cost.
Explanation of Solution
Externality is the spillover effect of an activity; it may be benefit or cost. If it is benefit, it is called positive externality. If the effect cost, it is called negative externality or external cost. Some examples of consumption that create external cost to the third party are smoking,wearing heavy perfume,and drinking. That is, smoking and drinking create health problems to people and smell of heavy perfume disturb others.
External cost: External cost or negative externality is the spillover cost to the third party.
Negative consumption externality: The consumption of any good that make cost to the third party is termed as negative consumption externality.
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Microeconomics (13th Edition)
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