Question

For each of the following, discuss the nature of the externalities involved and possible government responses: a. The outbreak of SARS (sudden acute respiratory syndrome) in Toronto in 2003. b. The H1N1 flu pandemic, as declared by the World Health Organization in June 2009. c. Driving on a (i) congested highway and (ii) uncongested highway.

Answer 1

(a) Outbreak of SARS: Negative Externality -

The outbreak of SARS (sudden acute respiratory syndrome) in Toronto in 2003 is a negative externality because the SARS is a type of disease which is contagious and spreads from one person to another. It is a serious and a life threatening viral infection caused by a virus. So, if people get sick from other people, they are getting a negative benefit from others. So, there is a negative externality. The possible government responses would be to treat those people who have the disease and try to separate the people affected from the non affected people so that the virus does not spread to other people.

(b) HINI flu pandemic: Negative Externality

The HINI flu pandemic is also a negative externality because it is a disease which is caused by a virus and it is contagious, that is, it spreads from one person to another person. In this situation too, the government is likely to take similar actions like the outbreak of SARS which would be treat those people who have the disease and try to separate the people affected from the non affected people so that the virus does not spread to other people.

(c) (i) Negative Externality, (ii) Positive Externality

(i) Congested Highway: Negative Externality - Congested highway creates a negative externality because people would get late to their destination which travelling in the congested highway and the travel time would increase. Nobody likes to be stuck in traffic and wants to reach their destination fast. The possible government actions would be to control traffic more effectively so that the highway does not become congested and also create new highways so there is more space for the vehicles to move and not create traffic issues.

(ii) Uncongested Highway: Positive Externality - Uncongested highway creates a positive externality because people would derive pleasure in travelling fast to their destination without any congestion. The possible government actions would be to maintain the uncongested highway so that this positive externality remains within the people travelling.