Question

1. Please provide an example of a private solution to externalities via charities. How can the government encourage this private solution?

2. In an apartment building, Tyler owns a dog and receives a $500 benefit from owning it. Tyler’s neighbor, Liz, incurs a cost of $300 from the dog’s barking. Suggest a deal between Tyler and Liz that would result in both individuals becoming better off. How does the arrangement change if there is a rule against having pets in the building?

Answer 1

1)

Externalities are the side effects of consumption and the production which are faced by the third parties.

The negatives externalities can be avoided if these firms who begins to pursue the corporate social responsibilitues. Through corporate social responsibility , firms begin charities. These charities address the challenges that are posed by the negatives externalities.

Expenditure by the firm on reducing the pollution would also mitigate the negatives of firm actions.