Question

1. What is an externality in economics? Explain how a neighbor’s barking dog could be both a positive and a negative externality.

2. Can pollution ever make us better off? How do we know? Should we aim to eliminate all pollution? If not, what should our goal be? Defend your answer.

3. When thinking about types of goods, what does rivalry mean? What does excludability mean? What are the four categories of goods we can identify using those attributes, and what is an example of a good in each category?

Answer 1

Answer 1. Cost and benefit derived from an action is termed as externality in economics. Neighbours barking dog can result in negative as well as positive externality. It will cause positive externality when barking of dogs will make house owner aware of any burglary happening. Barking of dog will cause negative externality when he continues to bark and disturbs you.

Answer 2. No existence of pollution will never make us better off. We can make this conclusion because existence of pollution is dangerous for health, it causes breathing problem and affects the lungs of a person. We should aim to eliminate all pollution by adopting eco friendly methods of production. Using solar energy instead of fuel energy will help in eliminating pollution.

Is pollution cannot be eliminated fully we should into reduce it so that it does not harm the health of people. Level of pollution can be decreased with the help of government putting taxes on emission of pollution beyond certain limit.

Answer 3. Rivalry in relation to goods refers to those goods who are consumed by only one person.

Excludability means that only those consumer who pay for a product can use it.

Private goods, public goods club goods, and common resource goods are four categories of goods that can be categorised using excludability and rivalry.

Example of private good : personal food and clothes.

Example of public good : public transport and National Defence.

Example or club goods : movie theatres and television

Example of common resource : national parks and preserves.

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