A local factory produces goods but also releases waste into a nearby river, affecting the water quality for the community. Given this scenario, which of the following best describes the impact of this factory's production on market efficiency?

The factory's production creates a negative externality because it harms the environment and the community by polluting the river. This means that while the factory benefits from making and selling its goods, it does not take into account the costs it imposes on others, like the reduced water quality for local residents. As a result, the market is not efficient because the true cost of production is higher than what the factory considers. For example, if the factory produces toys but also makes the river unsafe for fishing, the community suffers even though the factory profits. This situation shows that when businesses do not consider their impact on others, it can lead to an inefficient market where resources are not allocated properly.