Question

When someone takes an action that imposes costs on others who are not compensated for bearing these costs, it is termed:

Eminent domain

A positive externality

A public good

A negative externality

Non-rivalrous consumption

Answer 1

Answer – When someone takes an action that imposes costs on others who are not compensated for bearing these costs, it is termed as a negative externality.

In a situation of negative externality, the cost are imposed on the third party due to action of someone who does not compensate for these costs. In such a scenario, the one who imposes the cost does not pay retribution for that cost and thus, there are inefficient high level of cost imposing activity on the third party. Since they do not have to pay for it, they most likely, use more of the good than they would have used if they had to pay for the costs imposed.