Question

What are externalities?

Options

• Changes in income caused only by taxation

• Benefits or harms caused to others for which no payment is made or penalty is imposed

• Payments made for all domestic services

• Direct exchanges of goods through money

Answer 1

Externalities are benefits or harms caused to others for which no payment is made or penalty is imposed. Because they are not bought or sold in the market, they are not included in GDP.