Which of the following is an example of an external cost?

• A. A consumer enjoying a public park
• B. A company providing free training to its employees
• C. A neighbor planting flowers that beautify the street
• D. Air pollution from a factory affecting nearby residents

Answer: (D)

Verified step by step guidance

1. Understand the concept of external costs (negative externalities): these occur when a third party, who is not directly involved in a transaction or activity, suffers a cost as a result of that activity.
2. Analyze each option to identify whether it imposes a cost on an uninvolved third party:
3. - A consumer enjoying a public park is a positive externality or a private benefit, not a cost.
4. - A company providing free training to its employees is an internal benefit and does not impose costs on others.
5. - A neighbor planting flowers beautifies the street, which is a positive externality, not a cost.
6. - Air pollution from a factory affects nearby residents who are not part of the factory's production or consumption decisions, imposing a negative external cost on them.