An example of an externality is the use of the atmosphere for air pollution. This negative externality occurs when manufacturing activities produce pollution that affects third parties who are neither the buyer nor the seller, option (a) is correct.
An externality occurs when a third party, who is neither the buyer nor the seller, is affected by a transaction. An example of an externality is the use of the atmosphere for air pollution, which is a negative externality. When businesses like manufacturing plants produce pollution, they impose health and clean-up costs on society, which are not reflected in the business’s costs or the price of its products. These external costs lead to negative externalities as others have to deal with the consequences, such as dirty air and health issues, without compensation, option (a) is correct.