Question

1. Identify the following situations as a positive or negative externality
   1. Your neighbor keeps their yard looking beautiful
   2. Pesticides dumped in the water, cause algae bloom in a lake you can see from your house
   3. Your upstairs neighbor likes to do gymnastics late at night
   4. Investments in public education raise your country’s standard of living

Answer 1

Answer:

a. If my neighbourhood keeps their yard looking beautiful, then it will generate a positive externality as those who will walk by them can enjoy the beauty of the yard.

b. Algae bloom in lake caused by the pesticides-dumping generates a negative externality because it damages the beauty of the lake and also it makes the water poisonous. Also it is not pleasant to see from my house.

c. If my upstairs neighbour likes to do gymnastic late at night then it will generate a negative externality as it will hamper my sleep due to the noise.

d. Investment in public education generates a positive externality, as more educated population can enhance the overall welfare of the economy also more educated population can become more productive workers and can invent new and enhanced technologies which will generate higher GDP for the country.