Question

What kind of liability exposure does a manufacturer face if it emits contaminants that cause environmental impairment?

Select one:

A. Pollution

B. Business operations

C. Completed operations

D. Premises

Answer 1

Manufacturers face pollution liability when their operations result in environmental impairment, requiring them to manage emissions according to regulations such as command-and-control, which enforces anti-pollution measures and social cost internalization.

Step-by-step explanation:

A manufacturer that emits contaminants causing environmental impairment faces a type of liability exposure known as pollution liability. This liability arises when the manufacturing activities introduce contaminants into the environment, such as water, air, and land, at levels that are harmful. Pollution is an instance of a negative externality in production, where the adverse effects on the well-being of others are not compensated by the firm responsible for the pollution.

Command-and-control regulation is one of the ways that governments have responded to the challenge of pollution. These regulations specify allowable quantities of pollution and may require firms to install anti-pollution equipment, forcing them to internalize the social costs of pollution. By imposing these requirements, the government ensures that manufacturers take into account the environmental damage caused and act more responsibly.

Pollution describes situations where contaminants reach damaging levels, potentially leading to catastrophic environmental consequences. Manufacturers are expected to conscientiously manage their emissions, uphold environmental standards, and potentially face penalties for exceeding regulatory limits.