A firm dumping pollutants into a stream,thereby rendering the water unfit for use by those downstream,would be an example of a(n)
A) unfair distribution of income.
B) positive externality.
C) external diseconomy.
D) public good.
E) transfer payment.

Question

Quizplus · Accepted Answer

This is an example of an external diseconomy, where the negative effects of a firm's actions are imposed on those who are not involved in the market transaction and do not receive compensation for the harm caused. The downstream users of the polluted water are experiencing a negative externality because they are paying the cost of the pollution without receiving any benefits from the firm's activities.

A Firm Dumping Pollutants into a Stream,thereby Rendering the Water