Which of the following scenarios best illustrates the concept of market efficiency being affected by externalities?

Market efficiency refers to how well prices reflect all available information about a good or service. When externalities, like pollution, occur, they can distort this efficiency. For example, if a factory produces goods but also releases harmful waste into a river, the factory's costs do not include the negative impact on the environment and local community. This means the price of the goods may be lower than it should be because it doesn’t account for the harm being done. As a result, the market may produce too much of the good, leading to an inefficient allocation of resources and negative effects on society.