Each of the given scenarios involves an externality. Classify each scenario based on whether or not...

Each of the given scenarios involves an externality. Classify each scenario based on whether or not it is likely that private bargaining could be used to achieve a socially optimal outcome in each case.

Likely.....

Unlikely......

Answer choices:

1. LeShawn's neighbor mows his lawn during the night

2. The production of steel results in pollution that affects millions of residents in the surrounding area

3. Opening an Apple store in the mall causes overall sales in the mall to increase by 10%

Solutions

Expert Solution

Q.1) likely- because Leshawn's Neighbor may be busy during the day as they have to go to work or anyother kind of business so he mow's his lawn at night.

Q.2) Unlikely- because production of Steel are done in factories that are far away from residential area because they can't get such a large area in residential area so as they are far they cannot affect millions of residence.

Q.3) likely- because as apple is a branded company having a very good reputation in the market so people will visit the store as in addition may also visit the other stores as well which will increase the sale by 10%.

Rahul Sunny answered 2 years ago

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