Final answer:
A factory that pollutes a nearby stream contributes to negative externalities by imposing health and clean-up costs on society that are not included in its production costs. The correct answer is A. The factory is contributing to negative externalities.
Step-by-step explanation:
When a factory pollutes a nearby stream, it is contributing to negative externalities. This occurs when a firm's production activities reduce the well-being of others who are not compensated by the firm. Such activities impose health and clean-up costs on the whole society, and they are an example of a market failure because the true cost of the good is not reflected in its price.
On the other hand, environmental quality is increased and societal health benefits when factories emit fewer pollutants, thanks to environmental regulations that reduce negative externalities.
A negative externality occurs when a firm's production reduces the well-being of others who are not compensated by the firm. In this case, the factory's pollution is negatively affecting the environment and the nearby stream, imposing costs on society.
By polluting the stream, the factory is creating a negative externality, as it is not compensating for the costs of pollution. Environmental regulations can help reduce these negative externalities and promote environmental sustainability.