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

• A. A farmer's bees pollinate neighboring crops, increasing yields.
• B. A company invests in employee training to improve productivity.
• C. A factory emits pollution that affects nearby residents' health.
• D. A consumer receives a discount for buying in bulk.

Answer: (C)

Verified step by step guidance

1. Understand the concept of an externality: an externality occurs when a third party is affected by the actions of others, without this effect being reflected in market prices.
2. Identify the difference between positive and negative externalities: a positive externality benefits third parties, while a negative externality imposes costs on them.
3. Analyze each option to determine if it affects third parties positively or negatively and whether this effect is accounted for in the market transaction.
4. Recognize that the farmer's bees pollinating neighboring crops is a positive externality because it benefits others without compensation.
5. Note that a factory emitting pollution that harms nearby residents is a negative externality because it imposes an unaccounted cost on third parties.