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If industrial production pollutes a river and lowers fishermen's income, what problem is shown?

Answer and explanation

Correct answer: Negative externality and social cost

The pollution imposes a cost on fishermen who are not part of the firm's private transaction. Therefore, the firm's private cost is lower than the total social cost, which includes the fishermen's lost income and environmental damage. This is a negative externality. Option A is opposite, double counting concerns valuation, and a transfer payment is not the issue here.

Related tags

Gdp And WelfareNegative ExternalitySocial CostRiver PollutionNational Income And Related AggregatesEconomicsClass 11 Mcq

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