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The effect of a market exchange on a third party outside the exchange is called an:
AExternality
BElasticity
CEquilibrium
DEndowment
Answer & Solution
Correct answer: A. Externality
1. Some effects of a trade fall on people who were not part of it.
2. A market exchange can affect a third party who is outside the exchange.
3. That third party is external to the exchange.
4. Such an effect is called an externality.
_Source: OpenStax Principles of Microeconomics for AP Courses 2e (CC BY 4.0), Ch 12 'Environmental Protection and Negative Externalities'_
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