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If a production activity causes illness to nearby people but the producer does not bear the cost, what is it called?

Answer and explanation

Correct answer: Negative externality

A negative externality occurs when production or consumption imposes an uncompensated cost on third parties. Here, nearby residents suffer illness, but the producer does not include that harm in the private production cost. Consequently, social cost exceeds private cost. Option C is correct; a positive externality creates an unpaid benefit, a transfer payment is a redistribution, and an intermediate good is an input used in further production.

Related tags

Negative ExternalitySocial CostProductionGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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