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Chapter 12: Problem 15

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

Short Answer

Expert verified
A positive externality example is a homeowner planting a beautiful garden that provides enjoyment to neighbors and passersby who are not directly involved in the decision. A negative externality example is a factory emitting air pollution, causing health problems for nearby residents who are not connected to the factory's production process.

Step by step solution

01

Define Externalities

Externalities are the effects of a decision or action on third parties that are not directly involved in the decision or action. These effects can be either positive or negative.
02

Positive Externality Example

A positive externality occurs when an action taken by an individual or firm delivers benefits to other people who are not directly involved in the action. For example, consider a homeowner planting a beautiful garden in their front yard. Neighbors and passersby enjoy the sight of the garden, increasing their satisfaction and overall well-being. This positive effect on others, who are not directly involved in the decision to plant the garden, is a positive externality.
03

Negative Externality Example

A negative externality occurs when an action taken by an individual or firm imposes costs on other people who are not directly involved in the action. For example, consider a factory that emits large amounts of air pollution leading to health problems for people living in nearby areas. The factory's decision to produce goods, which results in air pollution, causes harm and health costs to the nearby residents who are not connected to the factory's production process. This negative effect on others is a negative externality.

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Most popular questions from this chapter

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.

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

How can high-income countries benefit from covering much of the cost of reducing pollution created by low-income countries?

Consider two ways of protecting elephants from poachers in African countries. In one approach, the government sets up enormous national parks that have sufficient habitat for elephants to thrive and forbids all local people to enter the parks or to injure either the elephants or their habitat in any way. In a second approach, the government sets up national parks and designates 10 villages around the edges of the park as official tourist centers that become places where tourists can stay and bases for guided tours inside the national park. Consider the different incentives of local villagers—who often are very poor—in each of these plans. Which plan seems more likely to help the elephant population?

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.
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