Future Business Leader Achievments (FBLA) Economics Practice Exam

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What is an example of an externality associated with environmental pollution?

  1. Noise complaints in urban areas

  2. Higher prices due to regulations

  3. Health problems in adjacent communities

  4. Job losses in polluting industries

The correct answer is: Health problems in adjacent communities

The choice of health problems in adjacent communities accurately illustrates an externality associated with environmental pollution. An externality occurs when the actions of one party have unintended consequences on others who are not directly involved in a transaction or activity. In this case, when a factory emits pollutants into the air or water, individuals living nearby may face health issues as a result of exposure to those harmful substances. This impact on public health is not reflected in the market transactions of the factory, meaning the costs of pollution are borne by the community rather than the polluting entity. Environmental pollution can lead to a range of health problems, such as respiratory diseases, cancers, and other serious conditions, which can burden healthcare systems and reduce the quality of life for affected individuals. This illustrates the broader implications of environmental degradation and reinforces the need for regulatory measures to mitigate such externalities and protect public health.

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