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Agriculture Economics QUESTION #11905
Question 1
A negative externality, such as chemical runoff from farm production, occurs when:
  • The producer bears all the costs of production
  • A cost of production is imposed on a third party not involved in the transaction✔️
  • The market price fully reflects all social costs
  • Government subsidizes the activity
Correct Answer Explanation
A negative externality is an uncompensated cost imposed on third parties outside the market transaction.