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If a particular market is associated with an externality, the social optimum should include the wellbeing of: Question 19 Not

should i choose a?please explain step by step

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An externality is a situation in which the effect of an economic transaction is felt on those who are not a party to the transaction involved. In simple words, an externality leads to an impact on the people(bystanders) who do not either produce or consume the good/service involved.

For example, a pharmaceutical industry which generates pollution and pollutes the river/streams nearby adversely affects the health of the people who come in contact with the water downstream.

Therefore, in a market associated with an externality, the social optimum must include the wellbeing of not only the buyers and sellers but also the wellbeing of bystanders

Ans: a. buyers, sellers and bystanders

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