Question

Many lakes in the Adirondack State Park in New York are carefully managed. At some lakes, fines are levied for introducing non-intended fish into the lake. Why would such a rule exist? (Answer this question from an externality perspective!)

Answer 1

Answer : Externality means an activity which makes cost or benefit for other parties. If activity makes cost for others then it is known as negative externality. If activity makes benefit for other then it is known as positive externality.

In case of case of negative externalities government take some action to recover the cost . Example : Fines, Tax imposition etc.

According to the given question, some lakes in  the Adirondack State Park in New York are facing fines for non-intended fish production. Because if fish production become less than demand then the price will rise which other parties will bear, i.e., this is the cost for other parties. In this case if fines are charged on lakes for less production then producers will be alerted and will try to produce sufficient level of production. Thus, the market demand and supply for fish will be equal and the market will attain the equilibrium condition.

From the above discussion it is clear that to maintain the equilibrium condition fines are levied.