Difficulty: Easy

Average Score: 100%

Which action will create a negative externality?

Rationale

Moving a noisy large manufacturing plant to a small town creates a negative externality.

This action generates unintended adverse effects on the local community, such as increased noise pollution and potential declines in property values, impacting residents who are not directly involved in the manufacturing operations.

A (Building a private school in a rural and underdeveloped area) YOUR ANSWER

Establishing a private school typically provides positive externalities by enhancing educational opportunities and potentially increasing local property values. This action benefits the community by attracting families seeking better education for their children, thus contributing positively rather than negatively.

C (Taking a commuter train with frequent stops to work) YOUR ANSWER

Using a commuter train reduces traffic congestion and pollution, providing positive externalities like decreased environmental impact and improved public transport efficiency. This choice benefits both the individual and the broader community by promoting sustainable transportation options.

D (Expanding the number of beehives near an apple orchard) YOUR ANSWER

Increasing beehives near an orchard generally creates positive externalities due to enhanced pollination, which can lead to better apple yields. This action benefits both the orchard owner and the surrounding ecosystem, demonstrating a mutually advantageous relationship rather than a negative impact.

Conclusion

Negative externalities arise when an action imposes costs on third parties not involved in the transaction. In this case, relocating a noisy manufacturing plant to a small town adversely affects local residents, exemplifying a classic example of negative externality. In contrast, the other options described either yield positive outcomes or do not significantly impact external parties, illustrating the importance of considering community effects in economic decision-making.

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