Which statement defines externality a it is a change in...

Which statement defines externality? A. It is a change in demand brought about by factors other than price. B. It is the external factors that cause a rise in the supply of goods or services. C. It is the external factors that cause a decrease in the supply of goods or services. D. It is the impact of production and consumption on unrelated third parties.

Transcript

00:01 Okay, so we're basically going to be looking at a definition that corresponds to externality.

00:08 In defining externality, i think the first point is to understand that we have a firm, that or an organization that is operating within a society.

00:21 All right.

00:22 So as long as the firm, the firm's operation do not have any attachment, and a link to what is happening in the generality of society.

00:34 There's no externality to talk about.

00:36 So we're basically looking at issues such as private costs, and the firm incurs costs, and then we have private benefits.

00:50 Okay, so there's the private costs and the private benefits.

00:53 But whatever the activities that are occurring in the firm, and if they do have an influence on society in some way, then we talk of social costs as well as social benefits.

01:08 If whatever the firm is doing is actually benefiting the entire society, then we talk about social costs and social benefits.

01:15 So let's look at the definitions that are provided and see which one best suits externality.

01:23 Okay, so basically the first one looks at it is a change in demand brought apart by the factors other than price.

01:31 So let's just list it change in demand.

01:34 Change in demand.

01:37 Let's look at the second option that is provided.

01:40 It says it is the external factors that cause a rise in the supply of foods or services...

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