A paint firm has just announced that it will be building a new plant in a small town that is currently experiencing a high level of unemployment. The new plant will create 500 new jobs in the area and will occupy unused land at the edge of town. The plant will also dump some harmful chemicals into the town's river. From an economic standpoint this dumping of chemicals
A) is unimportant since the firm is reducing the unemployment in the region.
B) creates a negative externality.
C) is the production of a public good.
D) creates a positive externality.

Question

Quizplus · Accepted Answer

The dumping of harmful chemicals into the town's river creates a negative externality, which is a cost imposed on someone else who is not involved in the production or consumption of the good. In this case, the residents of the town who use the river for fishing, swimming, or drinking water will be affected by the pollution. Although the creation of 500 new jobs is a positive economic impact, it does not negate the negative externalities caused by the pollution. The firm may need to consider ways to mitigate the harmful effects of the chemicals on the environment and local residents.

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