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As others have said, the stimulus says that the morally bad claim only applies to "an action that harms others", so A doesn't work because it didn't do harm.
The difficulty I had with the question was that the correct AC (E) doesn't explicitly say that "reasonable forethought" would have shown that the action of getting distracted while watching a three-year-old is likely to cause harm. That's not an unreasonable assumption to make, but it is nonetheless one you have to make for E to be correct. Given that the other choices were just wrong, it was the AC that I felt "most closely conforms" to the principle. If there were a choice similar to E that explicitly stated the assumption, maybe it would have been a better choice.
Are we assuming that society protecting freedom of thought means that people actually have freedom of thought?
#help (Added by Admin)
I think A would still be wrong but for a different reason. JY says that it should be specific to 10th Street, and I think that it's fair to assume that breathing in fumes is inherent to eating outside on 10th street. Therefore, the two ideas are intertwined in this example.
I think it would still be wrong because of the word "few". Miranda says that the restaurant was likely to fail because it did not offer an indoor seating option. This is obviously a problem if "few" people are willing to eat outside. However, even if half of the people are willing to eat outside, that is still a huge problem. Restaurants are already a risky business, you're telling me that right off the bat this place is going to turn off half of its potential customers because of their seating arrangement? That seems like a bad bet to me. Even if like 60% of people were willing to eat outside, that would be reasonable grounds for Miranda to say that the business is likely to fail, and that the bank was irresponsible to give the loan.