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Externalities - Positive and Negative

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What type of externality (positive or negative) is described in each of the following examples? Is the marginal social benefit of the activity greater than or equal to the marginal benefit to the individual? Is the marginal social cost of the activity greater than or equal to the marginal cost to the individual? Consequently, without intervention, will there be too little or too much (relative to what would be socially optimal) of this activity?
a. Mrs. Chau plants lots of colorful flowers in her front yard.
b. Anna Crombie and Fritz, a popular clothing store, opens in a mall, attracting more shoppers who also visit other stores.
c. The fraternity next to your dorm plays loud music, keeping you from studying.
d. Maija, who lives next to an apple orchard, decides to keep bees to produce honey.
e. Justine buys a large SUV that consumes a lot of gasoline

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What type of externality (positive or negative) is described in each of the following examples? Is the marginal social benefit of the activity greater than or equal to the marginal benefit to the individual? Is the marginal social cost of the activity greater than or equal to the marginal cost to the individual? Consequently, without ...

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Gaurav Agarwal, MS
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  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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