Question 24

Moving a noisy large manufacturing plant to a small town creates a negative externality.

This action results in noise pollution that affects the quality of life for residents in the small town, thereby imposing costs on them that are not reflected in the market price of the manufacturing plant's goods.

A) Building a private school in a rural and underdeveloped area

This action is unlikely to create a negative externality. Instead, it may provide educational benefits to the community, leading to positive externalities such as improved literacy and economic opportunities.

B) Moving a noisy large manufacturing plant to a small town

This option correctly identifies an action that creates a negative externality. The noise generated by the manufacturing plant can disturb local residents, affecting their well-being and property values, which illustrates the concept of negative externalities where third parties are adversely affected by a transaction.

C) Taking a commuter train with frequent stops to work

This action does not create a negative externality. In fact, using public transportation can lead to positive externalities by reducing traffic congestion and lowering pollution levels, benefiting the wider community.

D) Expanding the number of beehives near an apple orchard

This action is generally beneficial and is unlikely to create a negative externality. The presence of more beehives can enhance pollination for the apple orchard, leading to better crop yields, which is a positive effect rather than a negative one.

Conclusion

Moving a noisy large manufacturing plant to a small town clearly illustrates the creation of a negative externality due to the resulting noise pollution that impacts local residents. In contrast, the other options either provide benefits to the community or do not impose costs on third parties, thereby failing to qualify as negative externalities.