Multiple Choice
Which of the following is a barrier to achieving growth in the overall manufacturing market due to externalities related to social benefits and social costs?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following is evidence of a negative externality in production?
A
A company invests in employee training, increasing overall productivity.
B
A consumer purchases a product at a discounted price.
C
A factory emits pollution that harms the health of nearby residents.
D
A firm donates to a local charity, benefiting the community.
Verified step by step guidance1
Understand the concept of a negative externality in production: it occurs when the production process imposes a cost on third parties who are not involved in the transaction, such as pollution harming nearby residents.
Analyze each option to identify if it involves an unintended cost imposed on others due to production activities.
Option 1: A company investing in employee training increases productivity, which is a positive internal effect, not a negative externality.
Option 2: A consumer purchasing a product at a discounted price is a private transaction and does not involve external costs or benefits to third parties.
Option 3: A factory emitting pollution that harms the health of nearby residents clearly shows a negative externality because the factory's production imposes health costs on others outside the market transaction.
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