Which of the following is an example of a negative externality?

• A. A homeowner plants a garden that beautifies the neighborhood.
• B. A factory emits pollution that affects nearby residents' health.
• C. A student receives a scholarship for academic achievement.
• D. A company provides free training to its employees, increasing their productivity.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of an externality. An externality occurs when a decision causes costs or benefits to third parties who are not involved in the decision-making process.
2. Step 2: Differentiate between positive and negative externalities. A positive externality provides benefits to others (e.g., beautifying a neighborhood), while a negative externality imposes costs on others (e.g., pollution affecting health).
3. Step 3: Analyze each option to identify whether it creates external costs or benefits for third parties:
4. - A homeowner planting a garden beautifies the neighborhood, which is a positive externality.
5. - A factory emitting pollution harms nearby residents' health, which is a negative externality.