Which of the following is an example of a negative externality associated with automobile manufacturing?

• A. Increased profits for automobile manufacturers
• B. Air pollution caused by factory emissions
• C. Higher wages for factory workers
• D. Improved transportation options for consumers

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of a negative externality. A negative externality occurs when a third party experiences a cost or harm due to an economic activity, but this cost is not reflected in the market price.
2. Step 2: Analyze each option to identify if it imposes an external cost on others. Increased profits for manufacturers benefit the company and do not impose external costs, so it is not a negative externality.
3. Step 3: Consider air pollution caused by factory emissions. This pollution affects the health and environment of people who are not involved in the manufacturing process, representing a cost external to the market transaction.
4. Step 4: Evaluate higher wages for factory workers. This is a benefit to workers and does not impose a cost on third parties, so it is not a negative externality.
5. Step 5: Look at improved transportation options for consumers. This is a positive outcome for consumers and society, not a negative externality.