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Chapter 12: Q.15 (page 296)

Give an example of a positive externality and an example of a negative externality.

Short Answer

Expert verified

An example of positive externality - Tree plantation by a firm

An example of a negative externality - Pollution

Step by step solution

01

Externality : 

When an economic activity has an impact on individuals, it is called an externality.

Positive Externality :

Positive externality occurs as a result of the producers' or customers' behavior. It is consumption or production that can have a positive impact on third parties.

Negative externality :

Negative Externality refers to the unexpected repercussions of production and consumption that must be borne by others.

02

Example of positive externality :

A company's tree-planting programme is an excellent example of positive externality, especially in today's world. When a company plants trees, the entire ecosystem is improved, and not only the company, but the entire society benefits.

03

Example of negative externality : 

An example of a negative externality is the pollution. The use of fossil fuels such as coal, petroleum, and others results in the depletion of non-renewable resources, which has a significant environmental impact. Using these sorts of fuels results in the release of a variety of hazardous gases, which contribute to global warming as well as a variety of illnesses.

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Most popular questions from this chapter

Recycling is a relatively inexpensive solution to

much of the environmental contamination from plastics,

glass, and other waste materials. Is it a sound policy to

make it mandatory for everybody to recycle?

Classify the following pollution-control policies as command-and-control or market incentive-based.

a. A state emissions tax on the quantity of carbon emitted by each firm.

b. The federal government requires domestic auto companies to improve car emissions by 2020.

c. The EPA sets national standards for water quality.

d. A city sells permits to firms that allow them to emit a specified quantity of pollution.

e. The federal government pays fishermen to preserve salmon.

A city currently emits 16million gallons (MG) of raw sewage into a lake that is beside the city. Table 12.13shows the total costs (TC) in thousands of dollars of cleaning up the sewage to different levels, together with the total benefits (TB) of doing so. Benefits include environmental, recreational, health, and industrial benefits.

a. Using the information in Table 12.13calculate the marginal costs and marginal benefits of reducing sewage emissions for this city.

b. What is the optimal level of sewage for this city? How can you tell?

In the Land of Purity, there is only one form of pollution, called “gunk.” Table 12.14 shows possible combinations of economic output and reduction of gunk, depending on what kinds of environmental regulations you choose.

a. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the percentage reduction of gunk, and with the quantity of economic output on the vertical axis.

b. Which choices display productive efficiency? How can you tell?

c. Which choices show allocative efficiency? How can you tell?

d. In the choice between K and L, can you say which one is better and why?

e. In the choice between K and N, can you say which one is better, and why?

f. If you had to guess, which choice would you think is more likely to represent a command-and- control environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice L or M? Why?

Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. QS1 is the quantity supplied without social costs. QS2 is the quantity supplied with social costs. What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs, and then when we account for social costs. How does accounting for the externality affect the equilibrium price and quantity?
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