In many talks on environment, the concept of externality costs is frequently dis

Question

In many talks on environment, the concept of externality costs is frequently discussed. For energy, carbon dioxide is the most cited example. What is the broad definition of this idea?

Mankind will pay higher prices in the future related to a diminishing fossil fuel resource.

There are always unintended environmental consequences to our actions.

Economic consequences of current action are not reflected in the current price.

Mankind will pay higher prices in the future related to a diminishing fossil fuel resource.

There are always unintended environmental consequences to our actions.

Economic consequences of current action are not reflected in the current price.

Explanation / Answer

c. Economic consequences of current action are not reflected in the current price.

Externality cost is a consequence of actions by a group on another set of groups, especially those which donot participate actively or those that are not given a choice while articulating and executing those actions. For example - The processs of coal extraction doesnot include the cost of the environmental damage i.e., effects on Biodiversity or change in Groundwater level, health effects on people etc. This cost is known as the externality cost.

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