Which of the following is an example of spillover costs?

Question

There is a sudden shortage of goods and the supply cannot be increased quickly.

People buy products by paying illegally high prices for them.

A manufacturer continues to pollute a river because it does not pay the costs for cleaning it.

People have to pay higher prices for items that are in short supply

Answer 1

An example of spillover costs is:

A manufacturer continues to pollute a river because it does not pay the costs for cleaning it.

This scenario illustrates a negative externality where the costs imposed on the environment and society (such as the pollution of the river) are not reflected in the manufacturer's costs, leading to spillover effects that affect third parties.