What economic concept describes a consequence of an activity that affects others not involved in the transaction?

• A. Opportunity cost
• B. Monopoly
• C. Elasticity
• D. Externality

Answer: (D)

Externalities describe a consequence of an activity that affects others not involved in the transaction. When people or firms engage in market transactions, their actions can impose costs on bystanders, such as pollution or noise, or confer benefits, like a well- educated workforce or a thriving neighborhood. These spillover effects aren’t reflected in the market price, which is why externalities matter for efficiency and policy. The description in the question fits this concept because it highlights effects on third parties outside the buyer-seller pair. The other terms refer to different ideas: opportunity cost is what you give up to choose something, monopoly is about market power, and elasticity is about how responsive quantity demanded is to price.