Which of the following scenarios best represents a negative externality?

A negative externality occurs when an action by an individual or a company causes harmful effects on others who are not involved in that action. For example, imagine a factory that produces goods but also releases smoke and pollution into the air. The people living nearby might suffer from health issues or have a harder time enjoying clean air, even though they are not part of the factory's operations. This situation shows how the factory's actions negatively impact the community, leading to market failure because the factory does not take these costs into account when making its decisions. Therefore, the pollution created by the factory is a clear example of a negative externality, affecting people who are not directly involved in the factory's production.