New factories increased employment in a city but polluted the river. How should welfare be assessed?

Correct answer: By considering both employment gains and environmental losses

Welfare assessment must include both beneficial and harmful effects of economic activity. New factories may raise employment, incomes and production, but river pollution can impose health costs, reduce clean water and damage ecosystems. Therefore option D is correct because it considers the net social effect. Options A, B and C each use only one indicator and consequently ignore important benefits or costs.