A businessman opened a big leather factory on the banks of a river. The factory earns Rs. 10 crore per year. The wastes are dumped in to the river and the river gets polluted and adversely affects marine life. As a result fishermen loses livelihood. This situation is called as ______________.

Negative externalities

The correct answer is option (1) : Negative externalities

Negative externalities occur when the production or consumption of a good or service imposes costs on third parties who are not directly involved in the transaction. In this case, the pollution of the river by the factory's waste has adverse effects on the environment and the livelihoods of fishermen, which are external to the factory's operations but impacted negatively by them.