Multiple Choice
The impact of baby boomers getting older on an industry would be classified under which PESTEL factor?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following is an example of an externality?
A
A restaurant charging customers for their meals
B
A consumer purchasing a product for personal use
C
A factory polluting a river, affecting nearby residents' health
D
A firm paying wages to its employees
Verified step by step guidance1
Step 1: Understand the concept of an externality. An externality occurs when a decision causes costs or benefits to third parties who are not directly involved in the transaction.
Step 2: Analyze each option to see if it involves third-party effects that are not reflected in market prices.
Step 3: For the restaurant charging customers, the transaction is between the restaurant and the customers, with no third-party effects, so this is not an externality.
Step 4: For a consumer purchasing a product for personal use, the effects are private to the consumer, so this is not an externality.
Step 5: For a factory polluting a river, the pollution affects nearby residents' health, who are third parties not involved in the factory's production or sale, making this an example of a negative externality.
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