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Chapter 12: Problem 1

Identify the following situations as an example of a negative or a positive externality: a. You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds. b. Your neighbor paints his house a hideous color. c. Investments in private education raise your country's standard of living. d. Trash dumped upstream flows downstream right past your home. e. Your roommate is a smoker, but you are a nonsmoker.

Short Answer

Expert verified
a. Positive externality b. Negative externality c. Positive externality d. Negative externality e. Negative externality

Step by step solution

01

a. Birdhouses and plants that attract birds

In this situation, the neighbor puts up birdhouses and plants trees and flowers that attract birds. This is beneficial for the birder, who enjoys bird watching and did not have to put in any effort or resources. Therefore, this is an example of a positive externality.
02

b. Neighbor's house painted in a hideous color

In this case, the neighbor paints their house in a color that is displeasing to others. The negative aesthetic impact on others was not chosen by them, and it is an unwanted cost. Thus, this is an example of a negative externality.
03

c. Private education investments raising the country's standard of living

When investments in private education are made, they improve the quality of education, which in turn raises the country's standard of living. This benefit affects all citizens, including those who may not have made these investments themselves. This is an example of a positive externality.
04

d. Trash dumped upstream flowing past your home

In this situation, someone dumps trash upstream, and the trash flows downstream, passing by your home. This creates an unpleasant and potentially hazardous environment for those living downstream who did not choose to incur this cost. Therefore, this is an example of a negative externality.
05

e. Roommate being a smoker

In this scenario, the roommate is a smoker, and the nonsmoker must endure the consequences of secondhand smoke. The nonsmoker did not choose to be exposed to this unwanted cost, making it a negative externality.

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Most popular questions from this chapter

What is a marketable permit and what incentive does it provide for a firm to account for external costs?

The rows in Table 12.7 show three market-oriented tools for reducing pollution. The columns of the table show three complaints about command-and- control regulation. Fill in the table by stating briefly how each market- oriented tool addresses each of the three concerns. $$\begin{array}{l|lcc}\hline & \begin{array}{l}\text { Incentives to } \\\\\text { Go Beyond }\end{array} & \begin{array}{c} \text { Flexibility about Where and How } \\\\\text { Pollution Will Be Reduced }\end{array} & \begin{array}{c}\text {Political Process Creates } \\\\\text { Loopholes and Exceptions }\end{array} \\\\\hline \begin{array}{l}\text { Pollution } \\\\\text { Charges }\end{array} & & \\\\\hline \begin{array}{l}\text { Marketable } \\\\\text { Permits }\end{array} & & \\\\\hline\begin{array}{l}\text { Property } \\\\\text { Rights }\end{array} & & \\\\\hline\end{array}$$

Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as \(\mathrm{Pm}\) and \(\mathrm{Qm}\). Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Pe and Qe. On the graph, shade in the deadweight loss at the market output.

In the tradeoff between economic output and environmental protection, what do the combinations on the protection possibility curve represent?

As the extent of environmental protection expands, would you expect the marginal benefits of environmental protection to rise or fall? Why or why not?
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