On April 25, Foreman Electric installs wiring in a new home for $3,500 on account. However, on April 27, Foreman’s electrical work does not pass inspection, and Foreman grants the customer an allowance of $600 because of the problem. The customer makes full payment of the balance owed, excluding the allowance, on April 30.

The correct answer is option c.

Explanation:

An externality refers to the situation when a third person who is not directly involved in the production or consumption of a good or service has to bear the cost.  

Externalities can be both positive as well as negative. Positive externalities are called external benefits and negative externalities are called external costs.  

These externalities lead to inefficient allocation and cause market failure.  

The buyers and sellers generally neglect the externalities that they create, and the market equilibrium is not efficient. In this situation, the government has to intervene in the market to correct externalities and efficiently allocate resources.