A factory producing copper emits pollution that affects local residents' health. Which of the following categories best describes the situation in terms of externality graphs?

In this situation, the factory's pollution represents a negative externality. A negative externality occurs when a company's actions cause harmful effects on people who are not directly involved in that company's activities. In this case, local residents suffer health problems due to the pollution emitted by the factory, which means the factory does not bear the full cost of its production. To illustrate, imagine a nearby family's child getting sick because of the air quality; the factory's production benefits them financially but imposes health costs on the family. Therefore, in terms of externality graphs, this scenario would be depicted as a shift in the supply curve, showing that the true cost of production is higher than what the factory considers.