Question

For each of the 5 examples below, I need help understanding if:

1) Is there an externality? Is it positive, negative or a consumption or production externality

2) If there is an externality, is it likely that private markets will arise that allow the externality to be internalized?

3) If the conditions of a Coase theorem are not met, could the government intervene and how?

(a) Your fellow 14.41 classmate asks questions when things are confusing. (b) A rise in new construction in China drives up the world price of steel. (c) Coal power plants emit greenhouse gasses. (d) Some people in a high-crime neighborhood install LoJack in their vehicles. (LoJack is a small, silent transmitter hidden in a vehicle which allows police to track and recover it, if stolen.) (e) A pharmaceutical company discovers a new medicine.

Answer 1

a) not apply

b) externality. and its consumption, that affects all world consumers direct or indirect

c) externality, negative

d) externality positive

e) externality positive consumption