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.
Frequently asked questions
What is the correct answer to this question?
Negative externality
Why is this the correct answer?
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.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
