William Engages in an Activity That Influences the Well-Being of a Bystander

Multiple Choice

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?

A) The impact of William's activity on the bystander is adverse, and William compensates the bystander accordingly.
B) The impact of William's activity on the bystander is adverse, but William fails to compensate the bystander.
C) The impact of William's activity on the bystander is beneficial and the bystander compensates William accordingly.
D) Externalities arise in all of the above cases.