Question

7. Explain the term externality and outline any externalities, negative or positive, that might be generated by Dreams Café.

Answer 1

soln.:

Externality is the impact that may be a cost or benefit which affects to the person or party that is not directly deal with the transaction takes place, the externality can be positive or negative in its effect.

negative externality: where social cost are more than private cost.

Example: Burning coal which is more harmful for the enviorment than that of the person who burnt it.

positive externality: where social benefits are more than private benefits.

Example: public infrastructure building which is more beneficial for the society at large.

Positive externality:

If we talk about Dreams Cafe, its recent reopening witnessed a nice begining, it was made with new procedures and protocol to have the public support at large.The new board member Dennis Jacobsen assist the management with his great expertise in the field. With all his efforts Dreams cafe got 6 new fundraisers where artist can give their profromances as a donation, and all money collected is to used to pay off existing liablities.

So it can be concluded that in Dreams Cafe a new sort of positive externality was made through which the cafe may have to public support at large and able to come out of the debt trap condition.