The data on the map most directly relates to externalities for which of the following?

• A. Marginal utility derived from consumption
• B. Price elasticity of demand for consumer goods
• C. Market equilibrium in perfectly competitive markets
• D. Air pollution from industrial factories

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of externalities. Externalities occur when a third party is affected by the production or consumption of a good or service, without this effect being reflected in market prices.
2. Step 2: Identify the type of externality in the problem. Air pollution from industrial factories is a classic example of a negative externality because it imposes costs on people who are not involved in the production or consumption decisions.
3. Step 3: Recognize that marginal utility derived from consumption relates to the satisfaction a consumer gets from consuming goods, which is a private benefit and does not directly address external costs or benefits imposed on others.
4. Step 4: Understand that price elasticity of demand measures how quantity demanded responds to price changes, which is about consumer behavior and market responsiveness, not external effects on third parties.
5. Step 5: Note that market equilibrium in perfectly competitive markets assumes no externalities; thus, the presence of air pollution indicates a market failure where the social cost exceeds the private cost, highlighting the relevance of externalities.