Chapter 8, Problem 1P

To determine

(a)

To indicate:

Whether the given activity is a positive, negative or no externality.

Answer to Problem 1P

If the cell phone of an audience member loudly rings during a live theatre performance, it will be considered as a negative externality.

Explanation of Solution

The noise of phone bell will create disturbance for the people who are watching the performance. It will divert their attention. Thus, the given activity creates negative externality.

Economics Concept Introduction

Positive externality:

Positive externality refers to the benefit taken by the third party from the activities of the first two parties. The third party refers to any individual, group or organization that indirectly enjoys the benefit without doing anything in return. The government in the economy encourages schemes that promote positive externality.

Negative externality:

Negative externality refers to the losses bared by the third party due to the activities of the first two parties. The third party is usually an individual or an organization. In the economy, the first two parties are generally the producers and the consumers.

No externality:

No externality refers a situation where no benefit or loss is incurred by the third party over the activities of the first two parties.

To determine

(b)

To indicate:

Whether the given activity is a positive, negative or no externality.

Answer to Problem 1P

Giving a flu shot to an individual will be considered as a positive externality.

Explanation of Solution

The flu shot reduce the chances of catching flu from one individual to another. It is beneficial for the society. Therefore, it will create positive externality.

Economics Concept Introduction

Positive externality:

Positive externality refers to the benefit taken by the third party from the activities of the first two parties. The third party refers to any individual, group or organization that indirectly enjoys the benefit without doing anything in return. The government in the economy encourages schemes that promote positive externality.

Negative externality:

Negative externality refers to the losses bared by the third party due to the activities of the first two parties. The third party is usually an individual or an organization. In the economy, the first two parties are generally the producers and the consumers.

No externality:

No externality refers a situation where no benefit or loss is incurred by the third party over the activities of the first two parties.

To determine

(c)

To indicate:

Whether the given activity is a positive, negative or no externality.

Answer to Problem 1P

The purchasing and drinking of soda during a break is an activity which has no externality.

The activity will create no externality as drinking soda during a break from class will not benefit or harm anyone in the third party.

Explanation of Solution

The purchasing and drinking of soda during a break is an activity which has no externality.

Economics Concept Introduction

Positive externality:

Positive externality refers to the benefit taken by the third party from the activities of the first two parties. The third party refers to any individual, group or organization that indirectly enjoys the benefit without doing anything in return. The government in the economy encourages schemes that promote positive externality.

Negative externality:

Negative externality refers to the losses bared by the third party due to the activities of the first two parties. The third party is usually an individual, organization. In the economy, the first two parties are generally the producers and the consumers.

No externality:

No externality refers a situation where no benefit or loss is incurred by the third party over the activities of the first two parties.

To determine

(d)

To indicate:

Whether the given activity is a positive, negative or no externality.

Answer to Problem 1P

The cleaning up of trash by the college fraternity and sorority along a two-mile stretch on the highway is considered as positive externality.

Explanation of Solution

Cleaning up the highway will benefit the third party,as drivers on the highway will have clean and clear roads that will create a pleasant feeling. Therefore, it will create a positive externality.

Economics Concept Introduction

Positive externality:

Positive externality refers to the benefit taken by the third party from the activities of the first two parties. The third party refers to any individual, group or organization that indirectly enjoys the benefit without doing anything in return. The government in the economy encourages schemes that promote positive externality.

Negative externality:

Negative externality refers to the losses bared by the third party due to the activities of the first two parties. The third party is usually an individual or an organization. In the economy, the first two parties are generally the producers and the consumers.

No externality:

No externality refers a situation where no benefit or loss is incurred by the third party over the activities of the first two parties.

To determine

(e)

To indicate:

Whether the given activity is a positive, negative or no externality.

Answer to Problem 1P

The dumping of chemical wastes by a firm into a water reservoir will be considered under negative externality.

Explanation of Solution

Dumping of chemicals in local water reservoir will affect the localities, as it will pollute the water body and would not be fit for consumption purpose.Thus, it will harm the third party. Therefore, it will create negative externality.

Economics Concept Introduction

Positive externality:

Positive externality refers to the benefit taken by the third party from the activities of the first two parties. The third party refers to any individual, group or organization that indirectly enjoys the benefit without doing anything in return. The government in the economy encourages schemes that promote positive externality.

Negative externality:

Negative externality refers to the losses bared by the third party due to the activities of the first two parties. The third party is usually an individual or an organization. In the economy, the first two parties are generally the producers and the consumers.

No externality:

No externality refers a situation where no benefit or loss is incurred by the third party over the activities of the first two parties.

To determine

(f)

To indicate:

Whether the given activity is a positive, negative or no externality.

Answer to Problem 1P

The playing of loud music by an individual down the hall will be considered as a negative externality.

Explanation of Solution

The loud music will disturb the sleep, therefore, the activity will create negative externality.

Economics Concept Introduction

Positive externality:

Positive externality refers to the benefit taken by the third party from the activities of the first two parties. The third party refers to any individual, group or organization that indirectly enjoys the benefit without doing anything in return. The government in the economy encourages schemes that promote positive externality.

Negative externality:

Negative externality refers to the losses bared by the third party due to the activities of the first two parties. The third party is usually an individual or an organization. In the economy, the first two parties are generally the producers and the consumers.

No externality:

No externality refers a situation where no benefit or loss is incurred by the third party over the activities of the first two parties.