What is a characteristic of a negative externality?

A negative externality occurs when the actions of an individual or firm have undesired effects on a third party who is not involved in the transaction. This means that the costs associated with producing a good or service are not fully reflected in the market price of that good or service, leading to an inefficient allocation of resources.

When option C states that "the costs of production are borne by those other than the producer or consumer," it aptly describes a key aspect of negative externalities. For instance, pollution generated by a factory may impact the health of nearby residents, resulting in healthcare costs for those individuals, which are not accounted for by the factory owner or the consumers of the factory's product. Therefore, the expenses associated with these negative impacts are shifted to society rather than being absorbed by the direct parties involved in the transaction.

This concept helps illustrate the importance of government intervention or policy measures to address such externalities, ensuring that the true costs of production are reflected in the market and promoting a more socially optimal level of production.