Final answer:
Pollution from a factory affecting nearby residents' health is an example of a negative externality, as it imposes additional social costs not factored in by the factory.
Step-by-step explanation:
A negative externality is a cost that affects individuals or communities who are not directly involved in the production or consumption of goods or services. The presence of negative externalities often leads to issues of market failure, where the market does not account for all social costs and can result in overproduction of goods that have undesirable impacts. Pollution from a factory, as it affects the health of residents and requires cleanup, is a classic example of a negative externality, because these additional costs are not reflected in the price of the goods produced by the factory. It is an external cost that the producer does not take into account.
Answering the student's question, out of the options provided, pollution from a factory that affects the health of nearby residents is the example of a negative externality. This is due to the fact that the surrounding community bears the health and cleanup costs related to the factory's emissions, which the factory does not factor into its production costs.