Question

A cost of an activity that falls on people not engaged in the activity is called a(n)

Answer 1

A cost of an activity that falls on people not engaged in the activity is called an NEGATIVE EXTERNALITY.

So what is negative externality?

A negative externality is a like a cost that is tolerated by a third person as a result of any transaction. In this, the producer & consumer are the first and second parties, and third person include any individual, organisation, property owner, or resource that is indirectly (negatively) affected without being a part of that transaction. Negative externality can be consumption or the production side.

For example, a person is smoking in public and around him there are a couple pregnant ladies and small kids are standing. Then these people are suffering from negative externality as they are not smoking but because of the person who is smoking they have to inhale polluted air.