A. What is an externality?
b. Provide examples.
c. Is it possible for a governmentâ??s solution to a market failure to actually worsen the failure? Explain your answer.
Please use your own words, give me the full reference,date, page and para if used. Use no more than 300 words is fine. however you can use more if you like but in your own words please.
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What is an externality?
Externality is a cost (or benefit), not reflected by market prices, incurred by a third party who did not take part in the actions that caused the cost (or benefit). A benefit in this case is called a positive externality; a cost is called a negative externality.
I will provide you with 4 examples, two positive ones and two negative ones.
1. Pollution. Here a factory (the seller) produces a pollution in the process of creating productions. This pollution harms nearby residents, who are not a part of the transactions (i.e. the local residents are not buyers of the products, they are harmed because of someone else's demand).
2. Drinking and driving. Alcohol sellers sell wines to a driver. The ...