1. An externality exists when a. all of the consequences of an activity are controlled by explicit market contracts. b. harms or benefits are transmitted between people without (outside of) market transactions. c. everyone is fully compensated for whatever harms or benefits they experience as a result of market activities. d. the long-run costs of a market activity exceed its short-run costs.

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being born in poverty would limit the people's chances, opportunities and benefits.

this happen because of several things, such as:

- poor people tend to gain less access to good education and nutrition. this mean that their chance to obtain high paying jobs would also be limited.

- poor people tend to socialize with other poor people while the rich tend to socialize with other rich people. this means that simply throguh their social circle, rich people would have more business opportunities compared to the poor people.

- rich people tend to have more capital in their disposal. this would benefit them in business since it is far easier for them to fund their business operation compared to poor people.

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