Define external cost and external benefit with contemporary examples.

Define external cost and external benefit with contemporary examples.

• A. External cost is a positive spillover; external benefit is a negative health impact.
• B. External cost occurs when a firm bears all costs; external benefit occurs when a firm earns all benefits.
• C. External cost is a private cost borne by the producer; external benefit is a private benefit to the buyer.
• D. External cost is a negative side effect (pollution imposes health costs); external benefit is a positive spillover (restored wetlands improving flood protection).

Answer: (D)