You are having a party and one of your guests lights up a cigar withou

You are having a party and one of your guests lights up a cigar without asking. Explain why this creates an externality.

What will be an ideal response?

ANSWER

Smoking in an enclosed room forces other guests to inhale smoke which they would not have chosen to inhale if the decision were completely up to them. This external burden can range from headaches, being uncomfortable, and lung cancer. Of course, you could limit the externality by kicking the guest out.