Question

think of a positive or negative externality that youve witnessed. explain why it is that kind of externality. was anything done to adjust for this externality? What should be done?

Answer 1

There are different examples, being witnessed that explains the externality. For example, a manufacturing firm disposes its waste material to the nearby river and it has disturbed the water based ecological system of the river, increased pollution level of the river. As a result, community residing at the bank of river and those who depend upon the river, are getting negatively affected. It is a case of negative externality. To rectify this externality, the government inspected the firms and applied pollution tax to prevent market failure. Though, the government should bring regulations where the firms have to bring clean and green technologies with effluent treatment system. It will help waste to be harmless and will not create pollution and other problems.

In another example, there has been a library that provides an opportunity for people to learn and grow. It makes society to be better off. So, it creates positive externality. Here, government has yet to do anything. Ideally, government should do some funding to the library so that more books are brought, new areas are developed and more people can be benefited so that human capital development should take place.