Question

The price of pie increases. Some people who purchased pie before the price increase no longer purchase pie. This is A. a negative externality. B. a positive externality for some consumers and a negative externality for others. C. not an externality. D. a positive externality.

Answer 1

Answer: Not an externality

     

Explanation: Externality refers to a situation when a decision made by one party affects the other unrelated party. That affect could be positive or adverse.

The given statement shows law of demand and not externality as the price is changed for the pies and not of any other unrelated product, thus, the demand of pie would obviously get affected.