Which of the following is an example of an externality?

Step 1: Define the Problem

Identify the key components of the question that need to be addressed: Determine what an externality is and identify an example from the provided options.

Step 2: Break Down the Problem

Divide the problem into smaller, manageable parts:

• Understand the definition of an externality.
• Analyze each option to see if it fits the definition.

Step 3: Apply Relevant Concepts

Use appropriate academic theories or formulas to solve each part of the problem:

• An externality is a cost or benefit for a third party who did not agree to it. Externalities can be positive or negative.

Step 4: Analysis, Verify and Summarize

Analyze each part in detail if necessary, carry out the calculations by steps. Verify the calculations result and summarize the findings:

• Positive externality example: A homeowner's well-kept garden increases neighborhood property values.
• Negative externality example: Pollution from a factory affects the health of nearby residents.

Final Answer

Present the final result in a concise manner: An example of an externality is pollution from a factory affecting the health of nearby residents, as it imposes a cost on third parties not involved in the transaction.