Question

Which of the following is an example of spillover costs?

Answer 1

Answer:

A manufacturer continues to pollute a river because it does not pay the costs for cleaning it.

Explanation:

Answer 2

The option that is an example of spillover costs is A. a manufacturer continues to pollute a river because it does not pay the costs for cleaning it.

'Spillover costs' refers to a consequence that affects a third party that has not taken part in a decision. In other words, 'spillover costs' makes reference to the damage provoked by another person to a third party. This idea is often used to talk about pollution, as it happens in option A). In this case, the consequences of pollution experienced by the third party, who must pay the costs for cleaning pollution, are the spillover costs.