What makes the air pollution scenario an example of a negative externality? It negatively impacts those who aren't buying or selling what is being produced in the factory. (Third-parties) The cost to those outside the transaction isn't accounted for in the cost of production for that factory. (External Costs vs Private Costs) Their is an overproduction given that if the factory were forced to pay the external costs to the homes it would produce less. (Social Costs) All of the above.

The air pollution scenario is a classic case of a negative externality because it impacts individuals who are not directly involved in the factory's production—think of the families living nearby who now cannot enjoy clean air. This leads to a situation where the factory's profit motives do not align with the broader societal costs, showing how market transactions can overlook these external harms. Another fun fact about negative externalities: they're not just limited to air pollution! They're actually found in various industries. For instance, second-hand smoke from cigarettes affects non-smokers, and traffic congestion caused by excessive car use can burden those who prefer public transport. These examples highlight the need for regulations or policies that can help mitigate these unintended consequences.