An externality can best be defined as
A) a party not directly involved in a transaction.
B) a consequence of a transaction that spills over to affect third parties.
C) a right of an owner to use and exchange property.
D) a cost associated with the production of one more unit of output.
Question 2
Assume a family that earns 20,000 pays 2,000 in income taxes, while a family that earns 40,000 pays 3,500 in income taxes. In this situation, the income tax system is
A) progressive.
B) regressive.
C) proportional.
D) one of the above but we cannot tell which one without more information.
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