Multiple Choice
Which of the following activities is most likely to result in an external benefit?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following is an example of a negative externality (additional social cost)?
A
A homeowner plants a garden that beautifies the neighborhood
B
A company provides free training that increases workers' productivity
C
A person receives a flu vaccine, reducing the risk of disease for others
D
A factory emits pollution that affects the health of nearby residents
Verified step by step guidance1
Understand the concept of an externality: an externality occurs when a third party is affected by the actions of others, without this effect being reflected in market prices.
Distinguish between positive and negative externalities: a positive externality provides benefits to others (additional social benefits), while a negative externality imposes costs on others (additional social costs).
Analyze each option to identify whether it creates additional social costs or benefits beyond the private costs or benefits:
Recognize that a factory emitting pollution imposes health costs on nearby residents, which are not accounted for in the factory's private costs, thus representing a negative externality (additional social cost).
Conclude that the correct example of a negative externality is the factory emitting pollution affecting the health of nearby residents.
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