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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 vaccination, which not only protects the vaccinated person but also reduces disease spread, benefiting the community. A negative externality example is pollution from a factory that harms the ecosystem and affects people living nearby, imposing costs on them.

Step by step solution

01

Positive Externality Example

A common example of a positive externality is vaccination. When a person gets vaccinated, they not only protect themselves from illness but also protect the community by reducing the spread of disease. The individuals in the community who don't get sick due to other people's vaccination benefits from this positive externality.
02

Negative Externality Example

A common example of a negative externality is pollution from a factory. If a factory pollutes a river nearby, it may cause harm to the local ecosystem and the people living downstream who depend on the river for drinking water and other resources. In this case, the factory's action imposes costs on others, leading to a negative externality.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Positive Externality
A positive externality occurs when an individual's actions result in beneficial effects on others who are not directly involved in the activity. Vaccinations are a classic example. When someone gets vaccinated, they not only protect themselves but also contribute to what's known as herd immunity.
  • Herd Immunity: This is a form of protection from infectious diseases that occur when a significant percentage of a population becomes immune either through vaccination or previous infections. This reduces the spread of disease even to those who aren't immune.
  • Community Benefit: As more people get vaccinated, the overall chance of an outbreak decreases. This helps protect individuals who can't be vaccinated for medical reasons.
Positive externalities often create social benefits, which can sometimes lead to under-provision in markets due to the lack of direct financial returns for the provider.
Negative Externality
Negative externalities occur when the actions of individuals or businesses impose costs on others without compensating them. Pollution is a typical example of a negative externality. Let's consider a factory that releases waste into a river. This can lead to several detrimental effects:
  • Environmental Damage: Pollution can harm the local ecosystem, killing plants and animals in and around the river.
  • Health Risks: Communities relying on the river for water or food might face health problems due to the polluted water.
Negative externalities can lead to market failures, where the costs to society aren't reflected in market prices. This often requires government intervention to correct.
Vaccination Benefits
Vaccinations provide significant personal and social benefits, making them crucial in preventing infectious diseases.
  • Personal Protection: Vaccinations safeguard individuals against diseases by prompting the immune system to build a defense.
  • Reduced Healthcare Costs: With fewer people falling ill, there's less strain on the healthcare system, reducing costs for both individuals and society.
Additionally, by preventing diseases from spreading, vaccinations contribute to public health improvements and longer life expectancy, showcasing their role as a positive externality.
Pollution Impact
The impact of pollution extends far beyond its immediate surroundings. Factory emissions, for example, can have widespread negative consequences.
  • Air Quality Deterioration: Pollutants released into the air can lead to respiratory problems in humans and animals.
  • Water Contamination: When pollutants enter water bodies, they can harm aquatic life and make water unsafe for consumption.
  • Economic Costs: Decreased air and water quality can lead to increased healthcare costs and household expenditures on clean water.
Addressing the impacts of pollution often requires regulatory measures, such as emissions limits, to protect communities and the environment. This highlights the necessity for policies aimed at reducing negative externalities related to pollution.

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Most popular questions from this chapter

In a market without environmental regulations, will the supply curve for a firm account for private costs, external costs, both, or neither? Explain.

Table 12.5 provides the supply and demand conditions for a manufacturing firm. The third column represents a supply curve without accounting for the social cost of pollution. The fourth column represents the supply curve when the firm is required to account for the social cost of pollution. Identify the equilibrium before the social cost of production is included and after the social cost of production is included. $$\begin{array}{l|l|ll}\hline \text { Price } & \begin{array}{l}\text { Quantity } \\\\\text { Demanded }\end{array} & \begin{array}{l}\text { Quantity Supplied without paying } \\\\\text { the cost of the pollution }\end{array} & \begin{array}{c}\text { Quantity Supplied after paying } \\\\\text { the cost of the pollution }\end{array} \\\\\hline \$ 10 & 450 & 400 & 250 \\\\\hline \$ 15 & 440 & 440 & 290 \\\\\hline \$ 20 & 430 & 480 & 330 \\\\\hline \$ 25 & 420 &520 & 370 \\\\\hline \$ 30 & 410 & 560 & 410 \\\\\hline\end{array}$$

Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as \(\mathrm{Pm}\) and \(\mathrm{Qm}\). Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Pe and Qe. On the graph, shade in the deadweight loss at the market output.

Would environmentalists favor command-andcontrol policies as a way to reduce pollution? Why or why not?

What are better-defined property rights and what incentive do they provide to account for external costs?
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