What is the definition of an externality? What is the distinction between positive externalities (positive spillover costs) and negative externalities (negative spillover costs)? Why do externalities exist?© BrainMass Inc. brainmass.com October 25, 2018, 1:41 am ad1c9bdddf
Externalities are costs that are not captured in market prices. Postitive externalities are those that would make a price lower than it should be. For example, the benefits of a highly education population make society better for everyone, ...
A discussion on types of externalities and the reasons for their existences are examined.
What type of externality (positive or negative) is described in each of the following examples?
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