Economics for Today 7th Edition by Irvin Tucker

Exercise 1

Suppose the city of New Orleans discovered chemical compounds in its drinking water that may cause cancer. Since New Orleans's drinking water comes from the Mississippi River, the source of these chemicals is the waste discharges of industrial plants upstream from New Orleans. This is an example of
A) an external cost imposed on the citizens of New Orleans by the industrial plants upstream.
B) a market failure where the market price of the output of these industrial plants does not fully reflect the social cost of producing these goods.
C) an externality where the marginal social costs of producing these industrial goods differ from the marginal private costs.
D) all of the above.