Difficulty: Easy

Average Score: 75%

Which action will create a negative externality

Rationale

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

The relocation of a noisy manufacturing plant to a small town imposes external costs on the local community, such as noise pollution and decreased quality of life, without compensating those affected.

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

Using a commuter train typically benefits both the individual and the community by reducing traffic congestion and lowering carbon emissions. This action does not impose significant costs on others and thus does not create a negative externality.

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

While increasing the number of beehives can raise concerns about local bee populations, this action generally creates positive externalities by enhancing pollination services for the orchard, which can boost apple production. Thus, it does not constitute a negative externality.

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

Establishing a private school in a rural area typically benefits the community by providing educational opportunities and potentially increasing property values. This action is likely to generate positive externalities rather than negative ones, as it contributes to local development.

D (Moving a noisy, large manufacturing plant to a small town) CORRECT

This choice leads to increased noise and potential air pollution, adversely affecting the quality of life for residents. The negative effects on the community, such as health issues and diminished enjoyment of their environment, exemplify the creation of a negative externality.

Conclusion

Negative externalities occur when an action imposes unintended costs on third parties. In this case, relocating a noisy manufacturing plant to a small town introduces significant external costs that harm the local community's well-being while benefiting the company. Understanding such dynamics is crucial in economic planning and policy-making to mitigate adverse social impacts.

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