A large factory pours its toxic wastewater into a nearby river, and as a result, the residents of a downstream community experience high rates of illness and birth defects.The economic problem illustrated by this example is

Question

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The scenario illustrates a negative externality, where the factory's actions impose costs on the downstream community that are not reflected in the production costs of the factory. The factory is not taking into account the full cost of its production, which results in the residents of the downstream community suffering negative health effects.

A Large Factory Pours Its Toxic Wastewater into a Nearby