A firm produces a product valued by many loyal customers.In the process of producing the product,the firm produces a by-product that benefits the growth of fish and other aquatic life in the near-by stream.The impact of the firm's production on aquatic life is an example of:

Question

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The production of the by-product that benefits the growth of fish and other aquatic life represents an external benefit, which is a positive impact on society or the environment that is not reflected in the market price of the product. This is a case of positive externality, and it provides a justification for government intervention or policy measures to encourage the firm to internalize the external benefits or to compensate for the social value of the product. None of the other choices seem applicable to this situation. Moral hazard refers to the tendency of one party to take undue risks or shirk responsibilities because the costs will be borne by others. Opportunity cost is the value of the next best alternative foregone when a choice is made. Free rider advantage is the benefit that some individuals or groups enjoy without paying for it, usually in the context of public goods or common resources.

A Firm Produces a Product Valued by Many Loyal Customers